<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended October 31, 1998 Commission File number 1-5985
---------------- ------
NEWCOR, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-0865770
- ------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
1825 S. Woodward Ave., Suite 240
Bloomfield Hills, MI 48302 (248) 253-2400
- --------------------------------------- -------------------------------
(Address of principal executive office) (Registrant's telephone number)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
--------------------------
Common stock, $1 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. (X)
The aggregate market value of the voting common stock held by non-affiliates of
the registrant was $18,720,000 as of January 15, 1999.
The number of shares of common stock, $1 par value, outstanding as of January
15, 1999 was 4,942,034.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Newcor, Inc. Annual Report to
Shareholders for the year ended October 31, 1998 Part I, II and IV
Portions of the Newcor, Inc. 1999 Proxy Statement Part III
<PAGE> 2
Part I
Item 1. Business
GENERAL DESCRIPTION OF BUSINESS:
Newcor, Inc., a Delaware corporation with its executive offices located in
Bloomfield Hills, Michigan, (together with its wholly owned subsidiaries
referred to as the "Company" or "Newcor") was organized in 1969 to succeed a
Michigan corporation organized in 1933. The Company is organized into three
operating segments: Precision Machined Products, Rubber and Plastic and Special
Machines. The Precision Machined Products segment produces transmission,
powertrain and engine components and assemblies primarily for the automotive,
medium and heavy duty truck, and agricultural vehicle industries. The Rubber and
Plastic segment produces cosmetic and functional seals and boots and functional
engine compartment products primarily for the automotive industry. The Special
Machines segment designs and manufactures welding, assembly, forming, heat
treating and testing machinery and equipment for the automotive, appliance and
other industries.
The Company purchased the business and substantially all of the assets of
Machine Tool & Gear, Inc. ("MT&G") in December 1997. MT&G manufactures
differential pinion and side gears, output shafts and rear axle shafts for the
automotive industry. The Company also purchased the common stock of the three
related companies known as The Deco Group ("Deco") and Turn-Matic, Inc.
("Turn-Matic") in March 1998, subsequent to the issuance of $125 million 9.875%
Senior Subordinated Notes due 2008 (the "Notes"). Deco manufactures high-volume,
precision machined engine and powertrain components and assemblies for the
medium and heavy truck and automotive industries, while Turn-Matic manufactures
high-volume, precision machined engine components and assemblies for the
automotive industry.
The MT&G, Deco and Turn-Matic acquisitions and the issuance of the Notes have
substantially increased in the size of the Company and changed the character and
scope of its business. In addition, these transactions substantially increased
the Company's leverage, interest expense and cash requirements for debt service
in 1998 and future years as compared to 1997 and prior years. The Company's
ability to make scheduled payments of principal of, or to pay the interest on,
or to refinance, its indebtedness or to fund planned capital expenditures will
depend on its future performance, which to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control.
During 1997, the Company purchased the common stock of Plastronics Plus, Inc.
("Plastronics"), which primarily manufactures custom plastic injection-molded
components for the automotive industry. The Plastronics acquisition followed
three acquisitions in the Rubber and Plastic segment during fiscal 1996.
During May 1996, the Company completed the sale of the business and certain
assets of its Wilson Automation division ("Wilson"). Prior to the divestiture,
Wilson had been the Company's largest division based on revenue. The disposition
of Wilson was accounted for as a discontinued operation, and, accordingly, the
results of operations of Wilson have been reclassified to discontinued
operations from continuing operations for all years presented in the Company's
consolidated statements of income and notes thereto incorporated in this report.
The Company sold the business and substantially all assets of its Newcor Machine
Tool division, which operated in the Special Machines segment, in October 1996.
The Company sold the business and substantially all assets of its Eonic
division, which operated in the Precision Machined Products segment, in March
1997.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS:
Financial information about operating segments is presented in Note 13 (Segment
Reporting) of the Notes to Consolidated Financial Statements in Newcor's 1998
Annual Report to Shareholders. This information is hereby incorporated by
reference. This segment information is supplemented by the additional financial
information included under "Narrative Description of Business" below.
<PAGE> 3
NARRATIVE DESCRIPTION OF BUSINESS:
The markets served by the Company are highly cyclical and, in large part,
impacted by the strength of the economy generally, by prevailing interest rates
and by other factors. The markets for automotive and agricultural vehicles, for
which the Company supplies components, have all experienced strength in recent
years, but have experienced significant downturns in the past. Such downturns
have materially adversely affected the revenues, profitability and cash flow of
suppliers to these industries, including the Company, and there can be no
assurance that one or all such industries will not experience similar downturns
in the future. A cyclical decline in overall demand in any of the markets served
by the Company could have a material adverse effect on the Company's financial
condition, results of operations and debt service capability.
The Company operates in industries that are highly competitive though
fragmented. If any customer becomes dissatisfied with the Company's prices,
quality or timeliness of delivery, it could award future business or, in an
extreme case, move existing business to a competitor. There can be no assurance
that the Company's products will continue to compete successfully with the
products of competitors, including original equipment manufacturers ("OEM's")
themselves, many of which are significantly larger and have greater financial
and other resources than the Company.
Across all segments, sales in 1998 to Detroit Diesel Company, Deere & Company,
Ford Motor Company and American Axle & Manufacturing were approximately 19%,
17%, 13% and 11%, respectively, of consolidated sales. Although the Company
presently has ongoing supply relationships with each of these customers, there
can be no assurance that sales to these customers will continue at the same
levels or at all. Each of these customers has, and regularly exercises,
substantial negotiating leverage over its suppliers, including the Company, and
continuation of these relationships is dependent upon the customers'
satisfaction with the price, quality and delivery of the Company's products and
the Company's engineering capabilities and customer services. While management
believes its relationships with its customers are mutually satisfactory, if any
of these customers were to reduce substantially or discontinue its purchases
from the Company, the financial condition and results of operations of the
Company could be materially adversely affected. From time to time, suppliers to
these large customers, including the Company, enter into agreements mandating
periodic price reductions, which thereby effectively require such suppliers to
improve their efficiency and reduce costs in order to maintain profit margins,
and the Company is presently a party to several such contracts.
Precision Machined Products Segment:
During 1998, the Precision Machined Products segment accounted for 67% of
consolidated total revenue. This segment consists of two divisions and five
subsidiaries at October 31, 1998: Blackhawk Engineering, MT&G, Grand Machining
Company, Deco Technologies, Inc., Deco International, Inc., Turn-Matic, Inc. and
Rochester Gear, Inc.
Blackhawk's principal line of business is machining large gray iron, nodular
iron and steel foundry castings. Rochester Gear produces high-quality shafts,
axles, transmission parts and other machined components. MT&G manufactures
differential pinion and side gears, output shafts and rear axle shafts. Deco
produces high-volume precision machined engine and powertrain components and
assemblies. Turn-Matic manufactures high-volume, precision machined engine
components and assemblies.
In 1998, approximately 73% of the Precision Machined Products segment revenue
came from sales to the automotive market (OEM's and Tier 1 suppliers). The
remaining revenue was from sales to agricultural equipment manufacturers,
primarily Deere & Company.
Both divisions and subsidiaries in the Precision Machined Products segment have
several competitors, primarily domestic. Orders are almost exclusively obtained
through competitive bidding, based on quality, engineering capabilities,
delivery and price. Each division and subsidiary has established itself as a
reliable, high-quality, low-cost manufacturer in its marketplace.
Substantially all of the segment's revenue comes from domestic sales through
either the Company's sales staff or independent manufacturers' representatives.
<PAGE> 4
Most raw materials, supplies and other components are purchased from a number of
suppliers. Occasionally, a division will depend upon a single supplier for a
particular item when instructed by the customer. The Company has not experienced
any difficulty obtaining necessary purchased materials.
Throughout its product lines, Newcor has various patents and trademarks that
have been obtained over a number of years and expire at various times. While
Newcor considers each of them to be important to its business, the loss of any
patent or trademark would not materially affect the sales and profitability of
the Company.
The Precision Machined Products segment is considered seasonal, varying
primarily on OEM's semi-annual shutdowns in July and December.
There are no unusual working capital requirements within the Precision Machined
Products segment's divisions or the industries in which they operate.
Newcor's Precision Machined Products segment primarily operates under long-term
contracts and annual blanket purchase orders with its customers. Specific
releases against these blanket purchase orders are made on a daily basis by the
customer. Accordingly, order backlog is not considered meaningful to this group.
None of the segment's revenue is derived from government contracts.
Rubber and Plastic Segment:
During 1998, the Rubber and Plastic segment accounted for 24% of consolidated
total revenue. This segment consisted of four divisions and one subsidiary at
October 31, 1998: Deckerville, Auburn Hills, Walkerton, Livonia and Plastronics
Plus, Inc. In 1998, over 91% of the Rubber and Plastic segment revenue came from
sales to the automotive market (OEM's and Tier 1 suppliers). The remaining
revenue resulted from a wide variety of markets, including health care,
agricultural, appliance and others.
The segment utilizes dip, cast and other molding processes to manufacture both
interior components (principally transmission shift boots, steering column and
gearshift lever seals and air conditioning ducts) and engine compartment and
other body components (body and dash panel grommets and fuel filler seals). The
segment's injection molding facilities are used to manufacture fluid recovery
systems, hose and wire brackets, speaker seals and vacuum control systems. The
segment also supplies attachment and restraining products such as clips and
brackets.
Each of the divisions in the Rubber and Plastic segment has several competitors,
primarily all domestic. Orders are almost exclusively obtained through
competitive bidding, based on quality, engineering capabilities, delivery and
price. Each division has established itself as a reliable high-quality, low-cost
manufacturer in its marketplace.
Almost all of the segment's revenue results from domestic sales through either
the Company's sales staff or independent manufacturers' representatives.
Most raw materials, supplies and other components are purchased from a number of
suppliers. Occasionally, a division will depend upon a single supplier for a
particular item when instructed by the customer. The Company has not experienced
any difficulty obtaining necessary purchased materials.
Throughout its product lines, Newcor has various patents and trademarks that
have been obtained over a number of years and expire at various times. While
Newcor considers each of them to be important to its business, the loss of any
patent or trademark would not materially affect the sales and profitability of
the Company.
The Rubber and Plastic segment is considered seasonal, varying primarily with
the automotive industry's semi-annual shutdowns in July and December.
<PAGE> 5
There are no unusual working capital requirements within the Rubber and Plastic
segment's divisions or the industries in which they operate.
Newcor's Rubber and Plastic segment primarily operates under long-term contracts
and annual blanket purchase orders with its customers. Specific releases against
these blanket purchase orders are made on a daily basis by the customer.
Accordingly, order backlog is not considered meaningful to this segment.
None of the segment's revenue is derived from government contracts.
Special Machines Segment:
During 1998, the Special Machines segment accounted for 9% of consolidated total
revenue. This segment consists of one division: Newcor Bay City ("Bay City").
The Bay City division designs and assembles standard and special custom machines
and systems to meet its customers' welding, assembly, forming, heat treating and
testing process requirements. The Wilson Automation division and Newcor Machine
Tool division, previous business units of this segment, were sold during 1996.
Approximately 33% of the Special Machines segment revenue came from sales to the
automotive market (OEM's and Tier 1 suppliers) during 1998. The remaining
revenue resulted from a variety of markets including appliance, consumer goods,
aerospace and others.
Competition for the Special Machines segment is from both domestic and foreign
manufacturers. Most orders are obtained through a competitive bidding process
with decisions based on machine design and performance, production and
engineering capabilities, delivery, service and price. Repeat orders for a
similar machine are sometimes single-sourced. The level of competition varies
widely depending upon the industry in which the potential customer operates, the
size of the order and technical complexity involved in fulfilling the specific
order requirements. The Company attempts to differentiate itself by providing
timely, innovative solutions to its customers' requirements.
The products of this segment are marketed primarily in the major industrial
areas of the United States, Canada and Mexico by direct sales to its customers.
The majority of the segment sales are generated by sales engineers, with some
sales coming from independent manufacturers' representatives.
Competitive quotes are obtained for most components, raw materials and supplies
from a number of suppliers. The Company has not experienced any difficulty
obtaining necessary purchased materials.
Throughout its product lines, Newcor has various patents and trademarks that
have been obtained over a number of years and expire at various times. While
Newcor considers each of them to be important to its business, the loss of any
patent or trademark would not materially affect the sales and profitability of
the Company.
The Special Machines segment is not considered seasonal.
This segment's working capital requirements can vary significantly based on the
number of and stage of contracts in process.
As of December 31, 1998, the Special Machines segment backlog was $9.6 million.
Backlog at December 31, 1997 was $7.1 million. The backlog at December 31, 1998
is expected to be completed during fiscal 1999.
None of the segment's revenues resulted from government contracts.
Environmental Compliance:
Compliance by the Company with federal, state and local laws and regulations
pertaining to the environment has not and is not anticipated to have any
material effect upon the capital expenditures, earnings or operations of the
<PAGE> 6
Company. However, the Company's operations are subject to various federal, state
and local environment laws, ordinances and regulations, including those
governing discharges into the air and water, the storage, handling and disposal
of solid and hazardous wastes, the remediation of soil and groundwater
contaminated by petroleum products or hazardous substances or wastes and the
health and safety of employees ("Environmental Laws"). The nature of the
Company's current and former operations and the history of industrial uses at
some of its facilities expose the Company to the risk of liabilities or claims
with respect to environmental and related worker health and safety matters.
Compliance with Environmental Laws, stricter interpretations of or amendments to
such laws or more vigorous enforcement policies by regulatory agencies may
require material expenditures by the Company. In addition, under certain
Environmental Laws a current or previous owner or operator of property may be
liable for the costs of removal or remediation of certain hazardous substances
or petroleum products on, under or in such property, without regard to whether
the owner or operator knew of, or caused, the presence of the contaminants, and
regardless of whether the practices that resulted in the contamination were
legal at the time they occurred.
Employees:
At December 31, 1998, the Company had approximately 1,850 employees and 200
contract workers. Approximately 25% of the Company's employees and contract
workers at December 31, 1998 were represented by the United Auto Workers and the
United Steel Workers of America. Collective bargaining agreements with these
unions will expire at various times in 1999, 2000, 2001 and 2002. In addition,
most of the Company's customers employ workforces represented by the United Auto
Workers and other unions, and many of these customers have experienced work
stoppages at various times in the past. A dispute between the Company and its
employees, or between any of its major customers and such customers' employees,
could have a material adverse effect on the Company's financial condition and
results of operations. The labor strike of General Motors Corporation workers
represented by the United Auto Workers in June 1998 adversely impacted the
profitability of the Precision Machined Products and Rubber and Plastic
segments. In addition, sustained economic growth in the United States has
resulted in lower unemployment and higher demand for labor in many locations,
including certain locations in which the Company operates. Within the Rubber and
Plastic segment, profitability has been adversely impacted by increased scrap,
high training costs and productivity issues due to high hourly labor turnover
caused by full employment in local economies. There can be no assurance that
labor market conditions will not materially adversely affect one or more of the
Company's businesses or continue to adversely affect the Rubber and Plastic
business in the future.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND SALES:
The Company does not have any foreign operations and, therefore, does not
segregate its revenue by geographic area. Export sales, principally to Mexico
and Canada, represented less than 10% of consolidated revenue in 1998, 1997 and
1996.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENTS UNDER THE PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report, including the "Business" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" ("MD&A") sections, contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "intend," "will," "expect,"
"anticipate," "plan," "management believes," "estimate," "continue" or
"position" or the negatives of or other variations on those terms or comparable
terminology. In particular, any statement, express or implied, concerning future
operating results or the ability to generate revenues, income or cash flow are
forward-looking statements. Readers are cautioned that reliance on any
forward-looking statements involves risks and uncertainties and that, although
the Company believes that the assumptions on which the forward-looking
statements contained in this report are based are reasonable, any of those
assumptions could prove to be inaccurate. As a result, the forward-looking
statements based on those assumptions also could be incorrect, and actual
results may differ materially from any results indicated or suggested by those
forward-looking statements. The uncertainties in this regard include, but are
not limited to, those discussed under "Cautionary Statements Under the 'Safe
Harbor'
<PAGE> 7
Provisions of the Private Securities Litigation Reform Act of 1995" in
the MD&A incorporated in this report, "Environmental Compliance" in this
section, Item 3 of this report and other cautionary statements contained
throughout the "Business Section" of this report. All forward-looking statements
are expressly qualified by the cautionary statements set forth therein. In light
of these and other uncertainties, the inclusion of a forward-looking statement
in this report should not be regarded as a representation by the Company that
the Company's plans and objectives will be achieved.
Item 2. Properties
The Company conducts its business in company-owned facilities totaling
approximately 506,000 square feet and leased facilities totaling approximately
351,000 square feet of office, engineering, manufacturing and warehouse space,
respectively. All of these facilities are fully utilized and are suitable to
meet the current capacity needs of the divisions. Leases expire at various times
through 2002, and the Company generally has extension options.
Below is a summary of the existing facilities:
<TABLE>
<CAPTION>
Location Square Footage Type of Interest Description of Use
- -------- -------------- ---------------- ------------------
<S> <C> <C> <C>
Newcor:
Corporate Office
Bloomfield Hills, MI 7,000 Leased Administrative Office
Precision Machined Products
Group:
Rochester Gear
Clifford, MI 49,000 Owned Transmission and powertrain
components
Blackhawk Engineering
Cedar Falls, IA 54,000 Owned Tractor differential cases,
Waterloo, IA 17,000 Leased transmission cases, steering arms
and brake pedals
MT&G
Corunna, MI 100,000 Owned Differential pinion and side gears,
Fenton, MI 10,000 Owned output shafts and rear axle shafts
Deco
Troy, MI 55,000 Leased Rocker arm components and
Royal Oak, MI 110,000 Leased assemblies, transmission shafts,
accessory drive assemblies and
thrust and pressure plates
Turn-Matic
Clinton Township, MI 93,000 Leased Engine oil filter adapters, main
bearing caps and manifolds
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
Location Square Footage Type of Interest Description of Use
- -------- -------------- ---------------- ------------------
<S> <C> <C> <C>
Rubber and Plastic Group:
Deckerville Division
Deckerville, MI 89,000 Owned Gear shift boots, steering column
seals, shift lever gap hiders and
windshield wiper covers
Livonia Division
Livonia, MI 30,000 Leased Coated metal parts
Walkerton Division
Walkerton, IN 33,000 Owned Steering column seals and shift
lever gap hiders
Auburn Hills Division
Auburn Hills, MI 9,000 Leased Shift lever boots
Plastronics
East Troy, WI 39,000 Owned Vacuum reservoirs and assemblies
East Troy, WI 39,000 Owned for air conditioning, power
steering and cruise control systems,
hose and wire brackets and dash panel
grommets
Special Machines Group:
Newcor Bay City
Bay City, MI 123,000 Owned Automated welding and assembly
systems
Divested Business with
Facility Owned by Newcor and
leased to buyer:
Detroit, MI 58,000 Owned Formerly part of Eonic, which was
sold March 1997
</TABLE>
Item 3. Legal Proceedings
Various legal matters arising during the normal course of business are pending
against the Company. Management does not expect that the ultimate liability, if
any, of these matters will have a material adverse effect on future results of
operations or financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended October 31, 1998.
<PAGE> 9
Part II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters
The information required by this item, other than the number of shareholders, is
contained in Note 14 of the "Notes to Consolidated Financial Statements" in the
Newcor, Inc. 1998 Annual Report to Shareholders. This information is
incorporated herein by reference. At January 15, 1999 there were approximately
700 holders of the Company's common stock.
Item 6. Selected Financial Data
The information required by this item is contained in the Newcor, Inc. 1998
Annual Report to Shareholders under the heading "Five Year Financial Summary."
This information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required by this item is contained in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Newcor,
Inc. 1998 Annual Report to Shareholders. This information is incorporated herein
by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Management believes that the Company is not subject to market risk exposures
arising from derivative financial instruments, as well as all other financial
instruments, and derivative commodity instruments as defined by Item 305 of
Regulation S-K.
Item 8. Financial Statements and Supplementary Data
The information required by this item, including selected 1998 and 1997
quarterly financial data, is contained in the consolidated financial statements
and notes thereon and "Report of Independent Accountants" in the Newcor, Inc.
1998 Annual Report to Shareholders. This information is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by Items 401 and 405 of Regulation S-K that will be
contained in the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 21, 1999 (the "1999 Proxy Statement") is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 402 of Regulation S-K, which will be contained
in the Company's 1999 Proxy Statement, is incorporated herein by reference.
<PAGE> 10
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 403 of Regulation S-K, which will be contained
in the Company's 1999 Proxy Statement, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by Item 404 of Regulation S-K, which will be contained
in the Company's 1999 Proxy Statement, is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The consolidated Financial Statements and Notes thereto contained in
Newcor's 1998 Annual Report to Shareholders are incorporated herein by
reference.
2. Financial Statement Schedules
None required.
3. Exhibits (File number for all documents incorporated by reference
is Commission File Number 1-5985, except as otherwise indicated
below)
3(a) Restated Certificate of Incorporation dated July 25, 1990.
Incorporated herein by reference from Exhibit 3(a) to report on
Form 10-K for the fiscal year ended October 31, 1990.
3(b) By Laws of Registrant as amended through December 9, 1998.
4(a) Indenture dated as of March 4, 1998 between the Company, the
subsidiary guarantors (as defined therein), and First Trust
National Association as trustee, relating to the Notes (including
forms of Notes). Incorporated herein be reference from Exhibit 4(a)
to current report on Form 8-K filed on March 13, 1998.
4(b) A/B Exchange Registration Rights Agreement dated as of March 4,
1998 between the Company, the subsidiary guarantors (as defined
therein), and the initial purchasers of the Notes. Incorporated
herein by reference from Exhibit 4(b) to current report on Form 8-K
filed on March 13, 1998.
4(c) Form of 9 7/8% Series B Senior Subordinated Notes due 2008.
Incorporated herein by reference from Exhibit 4.1.3 to Registration
Statement on Form S-4 filed on April 30, 1998 (Commission File
Number 333-51415).
4(d) Third Amended and Restated Revolving Credit Agreement between
Newcor, Inc. and Comerica Bank dated January 15, 1998. Incorporated
herein by reference from Exhibit 4(a) to report on Form 10-K for
the fiscal year ended October 31, 1997.
4(e) First Amendment to Third Amended and Restated Revolving Credit
Agreement, dated February 12, 1998, between Newcor, Inc. and
Comerica Bank. Incorporated herein by reference from Exhibit 4(m)
to report on Form 10-Q for the quarter ended January 31, 1998.
4(f) Second Amendment to Third Amended and Restated Revolving Credit
Agreement, dated September 1, 1998, between Newcor, Inc. and
Comerica Bank.
4(g) Third Amendment to Third Amended and Restated Revolving Credit
Agreement, dated October 30, 1998, between Newcor, Inc. and
Comerica Bank. Registrant hereby undertakes to furnish copies of
documents relating to $6.1 million Michigan Strategic Fund Limited
Obligation Refunding Revenue Bonds, Series 1995, to the Securities
and Exchange Commission upon its request.
<PAGE> 11
10(a)* 1982 Incentive Stock Option Plan. Incorporated herein by reference
from Exhibit 10(a) to report on Form 10-K for the fiscal year ended
October 31, 1983.
10(b)* Newcor, Inc. Directors' Retirement Plan. Incorporated herein by
reference from Exhibit 10(b) to report on Form 10-K for the fiscal
year ended October 31, 1988.
10(c)* Board of Directors Deferred Directors' Fees Plan. Incorporated
herein by reference from Exhibit 10(e) to report on Form 10-K for
the fiscal year ended October 31, 1987.
10(d)* Agreement with Thomas D. Parker dated June 7, 1989. Incorporated
herein by reference from Exhibit 10(h) to report on Form 10-K for
the fiscal year ended October 31, 1992.
10(e)* Newcor, Inc. 1993 Management Stock Incentive Plan. Incorporated
herein by reference from Exhibit 10(j) to report on Form 10-K for
the fiscal year ended October 31, 1994.
10(f)* Amendment to Newcor, Inc. 1993 Management Stock Incentive Plan.
Incorporated herein by reference from Exhibit 10(k) to report on
Form 10-K for the fiscal year ended October 31, 1994.
10(g)* Employment Agreement with W. John Weinhardt dated February 13,
1995. Incorporated herein by reference from Exhibit 10(g) to report
on Form 10-K for the fiscal year ended October 31, 1995.
10(h)* Change in Control Agreement with W. John Weinhardt dated February
13, 1995. Incorporated herein by reference from Exhibit 10(h) to
report on Form 10-K for the fiscal year ended October 31, 1995.
10(i)* 1996 Employee Incentive Stock Plan dated March 6, 1996.
Incorporated herein by reference from the Registrant's Proxy
Statement dated February 5, 1996.
10(j)* 1996 Non-Employee Directors Stock Option Plan dated March 6, 1996.
Incorporated by reference from the Registrant's Proxy Statement
dated February 5, 1996.
10(k)* Employment Agreement with Dennis H. Reckinger dated July 31, 1992.
Incorporated herein by reference from Exhibit 10(n) to report on
Form 10-K for the fiscal year ended October 31, 1997.
10(l)* Employment Agreement with Robert C. Ballou dated September 25,
1995. Incorporated herein by reference from Exhibit 10(o) to report
on Form 10-K for the fiscal year ended October 31, 1997.
10(m)* Employment Agreement with Keith Hale dated March 4, 1998.
Incorporated herein by reference from Exhibit 10(d) to current
report on Form 8-K dated March 13, 1998.
10(n) Asset Purchase Agreement dated October 1, 1997 between Newcor, Inc.
and Machine Tool and Gear, Inc. Incorporated herein by reference
from Exhibit 2 to current report on Form 8-K/A filed on March 6,
1998.
10(o) First Amendment to Asset Purchase Agreement dated October 1, 1997
between Newcor, Inc. and Machine Tool and Gear, Inc. Incorporated
herein by reference from Exhibit 2.1 to current report on Form
8-K/A filed on March 6, 1998.
10(p) Second Amendment to Asset Purchase Agreement dated October 1, 1997
between Newcor, Inc. and Machine Tool and Gear, Inc. Incorporated
herein by reference from Exhibit 2.2 to current report on Form
8-K/A filed on March 6, 1998.
10(q) Third Amendment to Asset Purchase Agreement dated October 1, 1997
between Newcor, Inc. and Machine Tool and Gear, Inc. Incorporated
herein by reference from Exhibit 2.3 to current report on Form
8-K/A filed on March 6, 1998.
10(r) Fourth Amendment to Asset Purchase Agreement dated October 1, 1997
between Newcor, Inc. and Machine Tool and Gear, Inc. Incorporated
herein by reference from Exhibit 2.4 to current report on Form
8-K/A filed on March 6, 1998.
10(s) Stock Purchase Agreement, dated December 9, 1997, between Newcor,
Inc. and Stephen Grand, individually and as Trustee of the Stephen
Grand Revocable Trust u/a dated July 5, 1979 and the Stephen M.
Grand Property Trust u/a dated January 22, 1992. Incorporated
herein by reference from Exhibit 10(l) to report on Form 10-K for
the fiscal year ended October 31, 1997.
10(t) Amendment to Stock Purchase Agreement, dated December 9, 1997,
between Newcor, Inc. and Stephen Grand, individually and as Trustee
of the Stephen Grand Revocable Trust u/a dated July 5, 1979 and the
Stephen M. Grand Property Trust u/a dated January 22, 1992.
Incorporated herein by reference from Exhibit 10(b) to current
report on Form 8-K dated March 13, 1998.
10(u) Stock Purchase Agreement by and among each of the Shareholders of
Turn-Matic, Inc. and Newcor, Inc. dated January 16, 1998.
Incorporated herein by reference from Exhibit 10(m) to report on
Form 10-K for the fiscal year ended October 31, 1997.
13 Those portions of the Newcor, Inc. 1998 Annual Report to
Shareholders that are incorporated by reference in this Form 10-K.
<PAGE> 12
21 List of Subsidiaries of Registrant. Incorporated herein by
reference from Exhibit 21.1 to Registration Statement on Form S-4
filed on April 30, 1998 (Commission File Number 333-51415).
23 Consent of Independent Accountants.
27 Financial Data Schedule (EDGAR file only).
* - Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on December 21, 1998 discussing the
change in the Company's reporting period from a fiscal year ending October 31 to
a calendar year ending December 31.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Registrant Newcor, Inc.
------------
By: /s/ Keith F. Hale 1/26/99
---------------------------- -------
Keith F. Hale, President Date
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date Signed
- --------- ----- -----------
<S> <C> <C>
- ---------------------------------- Director
Jerry D. Campbell -------
/s/ John J. Garber
- ---------------------------------- Vice President Finance and 1/26/99
John J. Garber Chief Financial Officer -------
/s/ Shirley E. Gofrank
- ---------------------------------- Director 1/26/99
Shirley E. Gofrank -------
/s/ Keith F. Hale
- ---------------------------------- President and Chief 1/26/99
Keith F. Hale Executive Officer -------
/s/ William A. Lawson
- ---------------------------------- Director 1/26/99
William A. Lawson -------
/s/ Jack R. Lousma
- ---------------------------------- Director 1/26/99
Jack R. Lousma -------
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C>
- ---------------------------------- Director
Richard A. Smith -------
/s/ Kurt O. Tech
- ---------------------------------- Director 1/26/99
Kurt O. Tech -------
- ---------------------------------- Director
W. John Weinhardt -------
</TABLE>
<PAGE> 14
EXHIBIT INDEX
3(b) By Laws of Registrant as amended through December 9, 1998.
4(f) Second Amendment to Third Amended and Restated Revolving Credit
Agreement, dated September 1, 1998, between Newcor, Inc. and Comerica
Bank.
4(g) Third Amendment to Third Amended and Restated Revolving Credit
Agreement, dated October 30, 1998, between Newcor, Inc. and Comerica
Bank.
13 Those portions of the Newcor, Inc. 1998 Annual Report to Shareholders
that are incorporated by reference in this Form 10-K.
23 Consent of Independent Accountants.
27 Financial Data Schedule (EDGAR file only).
<PAGE> 1
EXHIBIT 3(b)
BY-LAWS
OF
NEWCOR, INC.
A DELAWARE CORPORATION
ARTICLE I.
Stockholders
Amended 12/9/98
Section 1. Annual Meeting. The annual meeting of the
stockholders of the corporation shall be held at such time on such date in the
month of April, May or June following the end of each fiscal year of the
corporation ending after the fiscal year ended December 31, 1998 at its
registered office in the City of Wilmington, Delaware, or at such other place
within or without the State of Delaware, as may from time to time be designated
at least 60 days prior to the date designated by the Board of Directors, for the
purpose of electing officers and for the transaction of such other business as
may properly be brought before the meeting.
Section 2. Special Meetings. Special meetings of the
stockholders may be held upon call of the President or Secretary or of the Board
of Directors at the registered office of the corporation in the City of
Wilmington, Delaware, or at such other place within or without the State of
Delaware as may be stated in the notice thereof and at such time and for such
purpose as may be stated in the notice. It shall be the duty of the President or
the Secretary or of the Board of Directors to call a special meeting of the
stockholders whenever requested in writing so to do by the holders of at least
twenty-five (25%) per cent in amount of the stock, regardless of class, then
outstanding and entitled to vote at such meeting.
Section 3. Notice of Meetings. Notice of the time, place and the
purpose of each meeting of the stockholders, signed by the President or a Vice
President or the Secretary or any Assistant Secretary shall be served either
personally or by mail upon each stockholder of record entitled to vote at such
meeting not less than ten (10) nor more than fifty (50) days before the meeting;
provided, that no notice of adjourned meetings need be given. If mailed, the
notice shall be directed to each stockholder entitled to notice at his address
as it appears on the stock books of the corporation unless he shall have filed
with the Secretary thereof a written request that notices intended for him be
mailed to some other address, in which case it shall be mailed to the address
designated in such request. Such further notice shall be given as may be
required by law. Meetings may be held without notice if all stockholders
entitled to vote thereat
<PAGE> 2
Page 2.
are present in person or by proxy or if notice of the time, place and purpose of
such meeting is waived by telegram, radiogram, cablegram or other writing,
either before or after the holding thereof, by all stockholders not present, and
entitled to vote at such meeting.
Section 4. Quorum. The holders of record of a majority of the
shares of stock of the corporation issued and outstanding regardless of class
and entitled to vote thereat, present in person or by proxy shall, except as
otherwise provided by law or by the Certificate of Incorporation of the
corporation as from time to time amended, constitute a quorum at all meetings of
the stockholders; if there be no such quorum, the holders of a majority of such
shares so present or represented may adjourn the meeting from time to time to a
further date without further notice other than the announcement at such meeting,
and when a quorum shall be present upon such adjourned day, any business may be
transacted which might have been transacted at the meeting as originally called.
Section 5. Conduct of Meetings. Meetings of the stockholders
shall be presided over by the President or the Chairman of the Board of
Directors, or if they are not present by a Vice President or if none of the Vice
Presidents are present by a Chairman to be chosen at the meeting. The Secretary
or an Assistant Secretary of the corporation, or, in their absence, a person
chosen at the meeting shall act as Secretary of the meeting.
Section 6. Inspectors of Election. Whenever any stockholder
present at a meeting of the stockholders shall request the appointment of
inspectors, the Chairman of the meeting shall appoint inspectors who need not be
shareholders. If the right of any person to vote at such meeting shall be
challenged, the inspectors of election shall determine such right. The
inspectors shall receive and count the votes either upon an election or for the
decision of any question, and shall determine the result. Their certificate of
any vote shall be prima facie evidence thereof.
Section 7. Proxy and Voting. Except as otherwise provided by
statute, the Certificate of Incorporation, or any certificate duly filed in the
State of Delaware pursuant to Section 151 of the Delaware General Corporation
Law, each holder of record of shares of stock of the corporation having voting
power shall be entitled at each meeting of the stockholders to one vote for
every share of such stock standing in his name on the record of stockholders of
the corporation on the date fixed by the Board as the record date for the
determination of the stockholders who shall be entitled to notice of and to vote
at such meeting; or if such record date shall not have been so fixed, then at
the close of business on the day next preceding the day on which notice thereof
shall be given, or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; or each stockholder entitled to
vote at any meeting of stockholders may authorize another person or persons to
act for him by a proxy signed by such stockholder of his attorney-in-
<PAGE> 3
Page 3.
fact. Any such proxy shall be delivered to the secretary of such meeting at or
prior to the time designated in the order of business for so delivering such
proxies. No proxy shall be valid after the expiration of three years from the
date thereof, unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the stockholder executing it, except in those cases
where an irrevocable proxy is permitted by law. Except as otherwise provided by
statute, these By-Laws, or the Certificate of Incorporation, any corporate
action to be taken by vote of the stockholders shall be authorized by a majority
of the total votes, or when stockholders are required to vote by class by a
majority of the votes of the appropriate class, cast at a meeting of
stockholders by the holders of shares present in person or represented by proxy
and entitled to vote on such action. Unless required by statute, or determined
by the chairman of the meeting to be advisable, the vote on any question need
not be by written ballot. On a vote by written ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 8. Consent of Stockholders in Lieu of Meeting. Whenever
the vote of stockholders at a meeting thereof is required or permitted to be
taken for or in connection with any corporate action, the meeting and vote of
stockholders can be dispensed with: (1) if all of the stockholders who would
have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken; or (2) unless the
Certificate of Incorporation provides otherwise, with the written consent of the
holders of not less than the minimum percentage of the total vote required by
statute for the proposed corporate action, and provided that prompt notice must
be given to all stockholders of the taking of corporate action without a meeting
and by less than unanimous written consent.
ARTICLE II
DIRECTORS
Amended 3/8/95
Section 1. Qualification, Term of Office and Quorum. The property,
business and affairs of the corporation shall be managed by its Board of
Directors and shall consist of not less than three (3) nor more than eleven (11)
persons, the exact number of which shall be determined from time to time by
resolution adopted by affirmative vote of a majority of the Board of Directors,
subject to the provisions of Section 2 of this Article II and Article Thirteenth
of the Restated Certificate of Incorporation, as amended. All of the directors
shall be of full age. Directors need not be stockholders. The Board of Directors
shall be divided into three classes, with the term of office of one class
expiring each year, and shall be elected at annual meetings of stockholders in
the manner, and otherwise subject to the provisions of, Article Thirteenth of
the Certificate of Incorporation, as amended. Each director elected shall hold
office until his successor is elected and qualified or until his earlier death,
resignation or removal. Except as otherwise provided by statute or these Bylaws,
directors shall be elected at an annual meeting of stockholders for the election
<PAGE> 4
Page 4.
of directors for which a quorum is present, and the persons receiving the
plurality of the votes cast as such election shall be elected.
Section 2. Vacancies. Vacancies and any newly created
directorships may be filled by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director, and the directors so
chosen shall hold office until the next election of the class for which such
directors shall have been chosen and until their successors are duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute. If,
at the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or holders of at least ten
percent of the votes of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office. Except as otherwise provided in these By-Laws,
when one or more directors shall resign from the Board, effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office as provided in this section in the
filling of other vacancies.
Section 3. Meetings. The meetings of the Board of Directors
shall be held at such place or places within or without the State of Delaware as
may from time to time be determined by a majority of the Board. Regular meetings
of the Board shall be held at such time and place as shall from time to time be
determined by resolution of the Board of Directors. Special meetings may be held
at any time upon the call of the President, Chairman of the Board or Vice
President or of not less than a majority of the directors then in office.
Section 4. Notice of Meetings. Oral telegraphic or written
notice of the time, place and purpose of all the meetings of the Board, regular
and special, shall be duly served on or sent, mailed or telegraphed to each
director not less than two (2) nor more than fifteen (15) days before the
meeting except that a regular meeting of the Board may be held without notice
immediately after the annual meeting of the stockholders at the same place as
such meeting was held, for the purpose of electing or appointing officers for
the ensuing year; provided, that no notice of adjourned meetings need be given.
Meetings may be held at any time without notice if all the directors are present
or if those not present waive notice of the time, place and purpose of such
meeting by telegram, radiogram, cablegram or other writing, either before or
after the holding thereof.
<PAGE> 5
Page 5.
Section 5. Executive and Other Committees. The Board of
Directors may, by resolution passed by a majority of the whole Board, designate
two or more of their number to constitute an executive or any other committee,
who, to the extent provided in said resolution, shall have and exercise the
authority of the Board of Directors in the management of the business of the
corporation between the meetings of the Board.
Section 6. Removal of Directors. Except as otherwise provided in
the Certificate of Incorporation or in these By-Laws, any director may be
removed, either with or without cause, at any time, by the affirmative vote of a
majority of the votes of the issued and outstanding stock entitled to vote for
the election of directors of the Corporation given at a special meeting of the
stockholders called and held for the purpose; and the vacancy in the Board
caused by any such removal may be filled by such stockholders at such meeting,
or, if the stockholders shall fail to fill such vacancy, as in these By-Laws
provided.
Section 7. Vice Chairman. The Board may elect members of the
Board of Directors to the position of Vice Chairman. A Vice Chairman shall
perform such duties and functions as shall be assigned to him from time to time
by the Chairman of the Board of Directors.
ARTICLE III.
Officers
Section 1. Election or Appointment. At its first meeting
following the annual meeting of stockholders, the Board of Directors shall elect
a President, who need not be a member of the Board of Directors, and shall also
elect a Secretary and a Treasurer; and may from time to time select a Chairman
of the Board, one or more Vice Presidents, Assistant Secretaries and Assistant
Treasurers. The same person may hold any two offices excepting those of
President and Vice President, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity. The Board may also appoint such
other officers and agents as they may deem necessary for the transaction of the
business of the corporation.
Section 2. Term of Office. The term of office of all officers
shall be one (1) year or until their respective successors are chosen but any
officer may be removed from office at any meeting of the Board of Directors by
the affirmative vote of a majority of the Directors then in office, whenever in
their judgment the business interests of the corporation will be served thereby.
The Board of Directors shall have power to fill any vacancies in any offices
occurring from whatever reason.
<PAGE> 6
Page 6.
Section 3. Eligibility of Officers. The President and Chairman
of the Board of Directors shall be stockholders. The Chairman of the Board shall
be a director of the corporation. The Vice Presidents, Secretary and Treasurer
and such other officers as may be elected or appointed need not be stockholders
or directors of the corporation.
Section 4. Chief Executive Officer. At the first meeting of each
newly elected Board of Directors, the board shall designate the Chairman of the
Board or the President as the Chief Executive Officer of the corporation;
provided, however, that if a motion is not made and carried to change the
designation, the designation shall be the same as the designation for the
preceding year; provided, further, that the designation of the Chief Executive
Officer may be changed at any meeting of the Board of Directors. The President
shall be the Chief Executive Officer whenever the office of Chairman of the
Board is vacant. The Chief Executive Officer shall be responsible to the Board
of Directors for the general supervision and management of the business and
affairs of the corporation and shall see that all orders and resolutions of the
board are carried into effect. The Chairman of the Board or President who is not
Chief Executive Officer shall be subject to the authority of the Chief Executive
Officer, but shall exercise all of the powers and discharge all of the duties of
the Chief Executive Officer during the absence or disability of the Chief
Executive Officer.
Section 5. Chairman of the Board of Directors. The Chairman of
the Board of Directors shall preside at all meetings of stockholders, of the
Board of Directors and of any Executive Committee. He shall perform such other
duties and functions as shall be assigned to him from time to time by the Board
of Directors, and by any Executive Committee. He shall be, ex officio, a member
of all standing committees. Except where by law the signature of the President
of the corporation is required, the Chairman of the Board of Directors shall
possess the same power and authority to sign all certificates, contracts,
instruments, papers and documents of every conceivable kind and character
whatsoever in the name of and on behalf of the corporation which may be
authorized by the Board of Directors. During the absence or disability of the
President, or while that office is vacant, the Chairman of the Board of
Directors shall exercise all of the powers and discharge all of the duties of
the President.
Section 6. President. The President shall during the absence or
disability of the Chairman of the Board, or while that office is vacant, preside
over all meetings of the Board of Directors, of the stockholders, and of any
Executive Committee, and shall perform all of the duties and functions, and when
so acting shall have all powers and authority, of the Chairman of the Board. He
shall be, ex officio, a member of all standing committees. The President, unless
some other person is specifically authorized by the Board of Directors, shall
have the power to sign all certificates of stock, bonds, deeds, mortgages,
extension agreements, leases and contracts of the corporation. The President
shall, in general, perform all duties as may be prescribed by the Board of
Directors.
<PAGE> 7
Page 7.
Section 7. Vice President. Except as specifically limited by
vote of the Board of Directors, any Vice President shall perform the duties and
have the powers of the President during the absence or disability of the
President and shall have the power to sign all certificates of stock, bonds,
deeds, and contracts of the corporation. He shall perform such other duties and
have such other powers as the Board of Directors shall designate.
Section 8. Secretary. The Secretary shall keep accurate minutes
of all meetings of the stockholders and the Board of Directors, and shall
perform such other duties and have such other powers as the Board of Directors
shall designate. The Secretary shall have power, together with the President or
a Vice President, to sign certificates of stock of the corporation. In his
absence at any meeting, an Assistant Secretary or a Secretary pro tempore shall
perform his duties thereat. The Secretary, any Assistant Secretary, and any
Secretary pro tempore shall be sworn to the faithful discharge of their duties.
Section 9. Treasurer. The Treasurer, subject to the order of the
Board of Directors, shall have the care and custody of the money, funds,
valuable papers, and documents of the corporation (other than his own bond, if
any, which shall be in the custody of the President), and shall have and
exercise, under the supervision of the Board of Directors, all the powers and
duties commonly incident to this office, and shall give bond in such form and
with such sureties as shall be required by the Board of Directors. He shall
deposit all funds of the corporation in such bank or banks, trust company or
trust companies, or with such firm or firms, doing a banking business, as the
directors shall designate. He may endorse for deposit or collection all checks
and notes payable to the corporation or to its order, may accept drafts on
behalf of the corporation, and together with the President or a Vice President
may sign certificates of stock. He shall keep accurate books of account of the
corporation's transactions which shall be the property of the corporation, and,
together with all its property in his possession, shall be subject at all times
to the inspection and control of the Board of Directors.
Section 10. General Powers as to Negotiable Paper. The Board of
Directors may, from time to time, prescribe the manner of the making, signature
or endorsement of bills of exchange, notes, drafts, checks, acceptances,
obligations and other negotiable paper or other instruments for the payment of
money and designate the officer or officers, agent or agents who shall, from
time to time, be authorized to make, sign or endorse the same on behalf of the
corporation.
Section 11. Removal. Any officer or agent of the Corporation may
be removed, either with or without cause, at any time, by the vote of the
majority of the entire Board at any meeting of the Board, or, except in the case
of an officer or agent elected or appointed by the Board, by the Chairman of the
Board or the President. Such removal shall be without prejudice to the
contractual rights, if any, of the person so removed.
<PAGE> 8
Page 8.
ARTICLE IV.
Certificate of Stock
Section 1. Form and Transfer. The interest of each stockholder
in the corporation shall be evidenced by certificates for shares of stock in
such form as the Board of Directors may, from time to time, prescribe in
accordance with the laws of the State of Delaware. Shares of stock of the
corporation may be transferred on the books of the corporation in the manner
prescribed by the laws of the State of Delaware by the holder thereof in person
or by his duly authorized attorney upon surrender for cancellation of
certificates for the same number of shares of the same class with an assignment
and power of attorney duly endorsed thereon or attached thereto, duly executed
and such proof of the authenticity of the signature as the corporation or its
agents may reasonably require.
Section 2. Signature, Countersignature and Registration. The
certificates of stock of the corporation shall be signed by or in the name of
the corporation by the President or a Vice President, and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and sealed with
the seal of the corporation and countersigned and registered in such manner, if
any, as the Board of Directors may by resolution prescribe; and to this end the
Board of Directors may, from time to time, appoint such Transfer Agents and
Registrars of stock of any class within or outside the State of Delaware as to
it may seem expedient; provided, that where such certificate is signed (1) by a
Transfer Agent or an Assistant Transfer Agent or (2) by a Transfer Clerk acting
on behalf of such corporation and a Registrar, the signature of any such
President, Vice President, Secretary, Assistant Secretary, Treasurer or
Assistant Treasurer and/or the seal of the corporation may be a facsimile. In
case any officer or officers, whether because of death, resignation, or
otherwise, before such certificate or certificates shall have been delivered by
the corporation, such certificate or certificates may nevertheless be adopted by
the corporation and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers of the
corporation.
Section 3. List of Stockholders. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
<PAGE> 9
Page 9.
Section 4. Mutilated, Stolen, Lost or Destroyed Certificates. In
case a certificate for shares of the capital stock of the corporation is
mutilated, stolen, lost or destroyed, a new certificate may be secured as
provided for lost or destroyed certificates under applicable Delaware law;
provided, however, that the owner of such certificate so mutilated, stolen, lost
or destroyed, registered on the books of the corporation, may, in the discretion
of the Board of Directors, upon making proof satisfactory to the Board of
Directors of such mutilation or alleged theft, loss or destruction, and upon
amply indemnifying the corporation and its Transfer Agents or Registrars, if
any, by a surety bond or otherwise to the satisfaction of said Board and such
Transfer Agents and Registrars, and upon the lapse of such reasonable time as
may be prescribed by the Board after written notice of such mutilation or
alleged theft, loss or destruction shall have been received by the Corporation,
receive a new certificate for the same number of shares of the same class in
lieu thereof, but only upon specific authorization by the Board of Directors
which may be given or withheld in the absolute discretion of the Board. If the
corporation shall voluntarily and in good faith have a new certificate issued in
lieu of one believed to have been stolen, lost or destroyed, or shall issue a
new certificate in compliance with an order of a Court of competent
jurisdiction, the corporation may recognize the person in whose name the new
certificate, or any certificate thereafter issued in exchange or substitution
therefor, is issued as the owner of the shares described therein for all
purposes, including the right to vote and the right to receive payment of
dividends, distribution or redemption price, until the owner of the original
certificate or a transferee thereof, without notice and for value, shall enjoin
the corporation and the holder of such new certificate or any certificate issued
in exchange or substitution therefor from so acting.
Section 5. Closing of Stock Transfer Books. The Board of
Directors may close the stock transfer books for a period not exceeding sixty
(60) days preceding the date of any meeting of stockholders or the date for the
payment of any dividend or the date for the allotment of rights or the date when
any change or conversion or exchange of capital stock shall go into effect,
during which time no stock of the corporation shall be transferred upon the
books of the corporation; provided, that in lieu of closing the stock transfer
books as aforesaid, the Board of Directors may fix in advance a date, not
exceeding sixty (60) days preceding the date of any meeting of shareholders, or
the date for the payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or exchange of capital stock
shall go into effect, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, any such meeting, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to exercise
the rights in respect of any such change, conversion or exchange of capital
stock, and in such case, such shareholders and only such shareholders as shall
be shareholders of record on the date so fixed, shall be entitled to such notice
of, and to vote at such meeting, or to receive payment of such dividend, or to
receive such allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any stock on the books of the corporation or
otherwise after any such record date fixed as aforesaid.
<PAGE> 10
Page 10.
ARTICLE V.
Fiscal Year; Seal
Amended 12/9/98
Section 1. Fiscal Year. The fiscal years of the corporation
shall begin on the first day of January of each year and shall end on the
thirty-first day of December following.
Section 2. Corporate Seal. The Board of Directors shall provide
a suitable corporate seal for use by the corporation.
ARTICLE VI.
Amendments
Except as otherwise provided in Article XIII of the Articles of
Incorporation, the By-Laws of the corporation may be amended, added to or
repealed, or other or new By-Laws may be adopted in lieu thereof by a majority
vote of the shareholders or of the Board of Directors of the corporation,
provided that notice thereof shall have been given in the notice of the meeting,
and provided further that the Board of Directors shall not make or alter any
By-Laws fixing their qualifications, classifications or term of office.
<PAGE> 1
EXHIBIT 4(f)
AMENDMENT NO. 2
SECOND AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
-----------------------------------
THIS SECOND AMENDMENT, dated as of the 1 st day of September, 1998, by
and between Newcor, Inc., a Delaware corporation, of Bloomfield Hills, Michigan
(herein collectively called "Company") and Comerica Bank, a Michigan banking
corporation, of Detroit, Michigan (herein called "Bank");
WITNESSETH:
WHEREAS, Company and Bank desire to amend that certain Third Amended
and Restated Revolving Credit Agreement dated as of January 15, 1998, entered
into by and between Company and Bank, which was amended by an Amendment dated as
of February 10, 1998 (herein called "Agreement");
NOW, THEREFORE, it is agreed that the Agreement is amended as follows:
1. The definition of "Debt Service Coverage Ratio" set forth in Section
1 of the Agreement is amended to add the following sentence to the end of such
definition:
"For purposes of calculating this ratio for any period which
includes the fourth quarter of calendar year 1998, the calculation of
Capital Expenditures shall exclude (a) the first $2,300,000 of any
payment made for the purpose of acquiring the real property located at
1360 E. Big Beaver Road, Troy, Michigan, 48084 to the extent it would
otherwise be deemed to be a Capital Expenditure in accordance with GAAP
and (b) the first $600,000 of Capital Expenditures during the fourth
quarter of calendar year 1998 at the Blackhawk Systems Division
expended to establish a contract employee program for John Deere."
2. Company hereby represents and warrants that, after giving effect to
the amendment contained herein, (a) execution, delivery and performance of this
Amendment and any other documents and instruments required under this Amendment
or the Agreement are within Company's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Company's
Certificate of Incorporation or Bylaws, and do not require the consent or
approval of any governmental body, agency, or authority; and this Amendment and
any other documents and instruments required under this Amendment or the
Agreement, will be valid and binding in accordance with their terms; (b) the
continuing representations and warranties of Company set forth in Sections 5.1
through 5.7 and 5.9 through 5.15 of the Agreement are true and correct on and as
of the date hereof with the same force and effect as made on and as of the date
hereof; (c) the continuing representations and warranties of Company set forth
in Section 5.8 of the Agreement are true and correct as of the date hereof with
respect to the most recent financial statements furnished to the Bank by Company
in accordance with Section 6.1 of the Agreement; and (d) no event of default, or
condition or event which, with the giving of notice or the running of time, or
both, would constitute an event of default under the Agreement, has occurred and
is continuing as of the date hereof.
3. This Amendment shall be effective upon execution of this Amendment
by Company and Bank and execution by the Guarantors of the attached
Acknowledgment.
4. Except as modified hereby, all of the terms and conditions of the
Agreement shall remain in full force and effect.
WITNESS the due execution hereof on the day and year first above
written.
<PAGE> 2
COMERICA BANK NEWCOR, INC.
By: /s/ Brian E. Marshall By: /s/ W. John Weinhardt
----------------------- -----------------------
W. John Weinhardt
Its: Vice President Its: President
By: /s/ John J. Garber
-----------------------
John J. Garber
Its: Treasurer
26
<PAGE> 3
ACKNOWLEDGMENT
--------------
The undersigned accept and agree to the Amendment No. 2 to the Third
Amended and Restated Revolving Credit Agreement and agree to the continued
effectiveness of the Guaranties originally executed and delivered to Comerica
Bank by the undersigned on January 15, 1998 and on March 4, 1998, as applicable.
ROCHESTER GEAR, INC.
By: /s/ W. John Weinhardt
------------------------
W. John Weinhardt
Its: Chairman
By: /s/ John J. Garber
---------------------
John J. Garber
Its: Treasurer
ENC CORP.
By: /s/ W. John Weinhardt
------------------------
W. John Weinhardt
Its: Chairman
By: /s/ John J. Garber
---------------------
John J. Garber
Its: Treasurer
27
<PAGE> 4
DECO TECHNOLOGIES, INC. PLASTRONICS PLUS, INC.
By: /s/ W. John Weinhardt By: /s/ W. John Weinhardt
------------------------- ------------------------
W. John Weinhardt
Its: Chairman Its: Chairman
By: /s/ John J. Garber By: /s/ John J. Garber
------------------------- ------------------------
John J. Garber
Its: Treasurer
Its: Treasurer
DECO INTERNATIONAL, INC.
NEWCOR M-T-L, INC.
By: /s/ W. John Weinhardt
-------------------------
By: /s/ W. John Weinhardt
------------------------
W. John Weinhardt
Its: Chairman
Its: Chairman
By: /s/ John J. Garber
-------------------------
By: /s/ John J. Garber
------------------------
Its: Treasurer John J. Garber
Its: Treasurer
TURN-MATIC, INC. GRAND MACHINING COMPANY
By: /s/ W. John Weinhardt By: /s/ W. John Weinhardt
------------------------- -------------------------
Its: Chairman Its: Chairman
By: /s/ John J. Garber By: /s/ John J. Garber
------------------------- -------------------------
Its: Treasurer Its: Treasurer
28
<PAGE> 1
EXHIBIT 4(g)
AMENDMENT NO. 3
THIRD AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
-----------------------------------
THIS THIRD AMENDMENT, dated as of the 30th day of October, 1998, by and
between Newcor, Inc., a Delaware corporation, of Bloomfield Hills, Michigan
(herein collectively called "Company") and Comerica Bank, a Michigan banking
corporation, of Detroit, Michigan (herein called "Bank");
WITNESSETH:
WHEREAS, Company and Bank desire to amend that certain Third Amended
and Restated Revolving Credit Agreement dated as of January 15, 1998, entered
into by and between Company and Bank, which was amended by an Amendment dated as
of February 10, 1998 and an Amendment dated as of September 1, 1998 (herein
called "Agreement");
NOW, THEREFORE, it is agreed that the Agreement is amended as follows:
1. The definition of "Applicable Measuring Period" set forth in
Section 1 of the Agreement is amended to read as follows:
"'Applicable Measuring Period' shall mean (a) with respect to
Option A set forth in Sections 6.3, 6.4 and 6.16 hereof, for the fiscal
quarter ending October 31, 1998, the nine month period beginning
February 1, 1998 and ending October 31, 1998, and for each fiscal
quarter thereafter, the four preceding fiscal quarters, (b) with
respect to Option B set forth in Sections 6.3, 6.4 and 6.16 hereof, for
the fiscal quarter ending (i) October 31, 1998, the nine month period
beginning February 1, 1998 and ending October 31, 1998, (ii) December
31, 1998, the eleven month period beginning February 1, 1998 and ending
December 31, 1998, (iii) March 31, 1999, the three month period
beginning January 1, 1999 and ending March 31, 1999, (iv) June 30,
1999, the six month period beginning January 1, 1999 and ending June
30, 1999, (v) September 30, 1999, the nine month period beginning
January 1, 1999 and ending September 30, 1999 and (vi) December 31,
1999 and each fiscal quarter thereafter, the four preceding fiscal
quarters, and (c) with respect to Option B, for purposes of calculating
the Funded Debt to EBITDA Ratio to determine the Applicable Margin and
the Applicable Commitment Fee Percentage pursuant to Section 2.11
hereof and Schedule 2.11 hereto, for the fiscal quarter ending December
31, 1998, the eleven month period beginning February 1, 1998 and ending
December 31, 1998 and for each fiscal quarter thereafter, the four
preceding fiscal quarters."
2. The definition of "EBITDA" set forth in Section 1 of the
Agreement is amended to read as follows:
"'EBITDA' shall mean as of any date of determination, Net
Income for the Applicable Measuring Period plus, to the extent deducted
in determining Net Income, (1) depreciation and amortization expense of
Company and its consolidated Subsidiaries for such period, (2) interest
expense of Company and its consolidated Subsidiaries for such period,
and (3) income taxes of Company and its consolidated Subsidiaries for
such period, all as determined in accordance with generally accepted
accounting principles consistently applied, multiplied by (A) with
respect to Option A set forth in Section 6.16 hereof, (i) four for the
Applicable Measuring Period ending April 30, 1998, (ii) two for the
Applicable Measuring Period ending July 31, 1998, (iii)
<PAGE> 2
one and one-third for the Applicable Measuring Period ending October
31, 1998 and (iv) one for each period thereafter, and (B) with respect
to Option B set forth in Section 6.16 hereof, (i) twelve-elevenths for
the Applicable Measuring Period ending December 31, 1998, (ii) four for
the Applicable Measuring Period ending March 31, 1999, (iii) two for
the Applicable Measuring Period ending June 30, 1999, (iv) one and
one-third for the Applicable Measuring Period ending September 30, 1999
and (v) one for each period thereafter."
3. The definition of "Funded Debt to EBITDA Ratio" set forth in
Section 1 of the Agreement is amended to read as follows:
"'Funded Debt to EBITDA Ratio" shall mean, as of any date of
determination, a ratio the numerator of which is Funded Debt as of such
date and the denominator of which is EBITDA for the Applicable
Measuring Period multiplied by (A) with respect to Option A set forth
in Section 6.4 hereof, (i) four for the Applicable Measuring Period
ending April 30, 1998, (ii) two for the Applicable Measuring Period
ending July 31, 1998, (iii) one and one-third for the Applicable
Measuring Period ending October 31, 1998 and (iv) one for each period
thereafter, and (B) with respect to Option B set forth in Section 6.4
hereof, (i) twelve-elevenths for the Applicable Measuring Period ending
December 31, 1998, (ii) four for the Applicable Measuring Period ending
March 31, 1999, (iii) two for the Applicable Measuring Period ending
June 30, 1999, (iv) one and one-third for the Applicable Measuring
Period ending September 30, 1999 and (v) one for each period
thereafter.
4. Section 6.3 of the Agreement is amended to read as follows:
"On a Consolidated statement basis, maintain as of the end of
each fiscal quarter, a Debt Service Coverage Ratio of not less than the
following amounts during the periods specified below:
<TABLE>
<CAPTION>
OPTION A:
<S> <C>
October 31, 1999 through April 29, 2000................................................1.0 to 1.0
April 30, 2000 through October 30, 2000...............................................1.25 to 1.0
October 31, 2000 and thereafter........................................................1.5 to 1.0
OPTION B:
March 31, 1999 through June 29, 2000..................................................1.20 to 1.0
June 30, 2000 through December 30, 2000...............................................1.25 to 1.0
December 31, 2000 and thereafter.....................................................1.50 to 1.0"
5. Section 6.4 of the Agreement is amended to read as follows:
"6.4 On a Consolidated statement basis, maintain as of the end of each fiscal quarter, a
Funded Debt to EBITDA Ratio of not more than the following amounts during the periods specified
below:
OPTION A:
October 31, 1998 through January 30, 1999..............................................6.5 to 1.0
January 31, 1999 through April 29, 1999...............................................6.75 to 1.0
April 30, 1999 through July 30, 1999...................................................6.5 to 1.0
July 31, 1999 through October 30, 1999................................................6.25 to 1.0
</TABLE>
30
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
October 31, 1999 through April 29, 2000................................................5.5 to 1.0
April 30, 2000 through October 30, 2000................................................5.0 to 1.0
October 31, 2000 and thereafter........................................................4.5 to 1.0
OPTION B:
October 31, 1998 through December 30, 1998.............................................6.5 to 1.0
December 31, 1998 through March 30, 1999..............................................6.75 to 1.0
March 31, 1999 through March 30, 2000..................................................5.0 to 1.0
March 31, 2000 through December 30, 2000..............................................4.75 to 1.0
December 31, 2000 and thereafter......................................................4.5 to 1.0"
</TABLE>
6. Section 6.10 of the Agreement is amended to replace the word
"and" in the fifth line thereof with a comma and to add "and 6.16" immediately
following the reference to "6.5" in the fifth line thereof.
7. Section 6.16 is added to the Agreement as follows:
"6.16 Maintain at all times EBITDA of not less than the
following amounts during the periods specified below:
<TABLE>
<CAPTION>
OPTION A:
<S> <C>
October 31, 1998 through January 30, 1999.................................................$22,000
January 31, 1999 through April 29, 1999...................................................$21,500
April 30, 1999 through July 30, 1999......................................................$22,000
July 31, 1999 through October 30, 1999....................................................$23,500
OPTION B:
October 31, 1998 through December 30, 1998................................................$22,000
December 31, 1998 through March 30, 1999.................................................$21,000"
</TABLE>
8. On or before December 31, 1998, Company shall elect either
Option A or Option B, as set forth in Sections 6.3, 6.4 and 6.16 of the
Agreement by delivering written notice of such election to Bank. If Company
fails to provide such written notice by December 31, 1998, Option A shall govern
and control.
9. Company hereby represents and warrants that, after giving
effect to the amendment contained herein, (a) execution, delivery and
performance of this Amendment and any other documents and instruments required
under this Amendment or the Agreement are within Company's corporate powers,
have been duly authorized, are not in contravention of law or the terms of
Company's Certificate of Incorporation or Bylaws, and do not require the consent
or approval of any governmental body, agency, or authority; and this Amendment
and any other documents and instruments required under this Amendment or the
Agreement, will be valid and binding in accordance with their terms; (b) the
continuing representations and warranties of Company set forth in Sections 5.1
through 5.7 and 5.9 through 5.15 of the Agreement are true and correct on and as
of the date hereof with the same force and effect as made on and as of the date
hereof; (c) the continuing representations and warranties of Company set forth
in Section 5.8 of the Agreement are true and correct as of the date hereof with
respect to the most recent financial statements furnished to the Bank by Company
in accordance with Section 6.1 of the Agreement; and (d) no event of default, or
condition or event which, with the giving of notice
31
<PAGE> 4
or the running of time, or both, would constitute an event of default under the
Agreement, has occurred and is continuing as of the date hereof.
10. This Amendment shall be effective upon (a) execution of this
Amendment by Company and Bank, (b) execution by the Guarantors of the attached
Acknowledgment, and (c) payment to Bank of a nonrefundable fee in the amount of
Twelve Thousand Five Hundred Dollars ($12,500) which shall be deemed fully
earned by Bank upon execution of this Amendment.
11. Except as modified hereby, all of the terms and conditions
of the Agreement shall remain in full force and effect.
WITNESS the due execution hereof on the day and year first above
written.
COMERICA BANK NEWCOR, INC.
By: /s/ Timothy P. Ashley By: /s/ W. John Weinhardt
-------------------------- ------------------------
W. John Weinhardt
Its: Vice President Its: President
By: /s/ John J. Garber
---------------------
John J. Garber
Its: Treasurer
32
<PAGE> 5
ACKNOWLEDGMENT
--------------
The undersigned accept and agree to the Amendment No. 3 to the Third
Amended and Restated Revolving Credit Agreement and agree to the continued
effectiveness of the Guaranties originally executed and delivered to Comerica
Bank by the undersigned on January 15, 1998 and on March 4, 1998, as applicable.
ROCHESTER GEAR, INC.
By: /s/ W. John Weinhardt
-----------------------
W. John Weinhardt
Its: Chairman
By: /s/ John J. Garber
--------------------
John J. Garber
Its: Treasurer
ENC CORP.
By: /s/ W. John Weinhardt
------------------------
W. John Weinhardt
Its: Chairman
By: /s/ John J. Garber
---------------------
John J. Garber
Its: Treasurer
33
<PAGE> 6
DECO TECHNOLOGIES, INC. PLASTRONICS PLUS, INC.
By: /s/ W. John Weinhardt By: /s/ W. John Weinhardt
--------------------------- -----------------------
W. John Weinhardt
Its: Chairman Its: Chairman
------------------------
By: /s/ John J. Garber
-------------------------
By: /s/ John J. Garber
--------------------
John J. Garber
Its: Treasurer
------------------------
Its: Treasurer
DECO INTERNATIONAL, INC. NEWCOR M-T-L, INC.
By: /s/ W. John Weinhardt By: /s/ W. John Weinhardt
--------------------------- -----------------------
W. John Weinhardt
Its: Chairman Its: Chairman
By: /s/ John J. Garber
-------------------------
By: /s/ John J. Garber
--------------------
Its: Treasurer John J. Garber
------------------------
Its: Treasurer
TURN-MATIC, INC. GRAND MACHINING COMPANY
By: /s/ W. John Weinhardt By: /s/ W. John Weinhardt
--------------------------- -----------------------
Its: Chairman Its: Chairman
-------------------------- -----------------------
By: /s/ John J. Garber By: /s/ John J. Garber
--------------------------- -----------------------
Its: Treasurer Its: Treasurer
-------------------------- -----------------------
34
<PAGE> 1
EXHIBIT 13
NEWCOR, INC.
Exhibit 13 to Form 10-K
For the Year Ended October 31, 1998
Portion of Newcor, Inc. 1998 Annual Report to Shareholders
FIVE YEAR FINANCIAL SUMMARY
The following financial summary for the years indicated has been
derived from the consolidated financial statements of Newcor, Inc. Information
for 1996 and prior years, excluding balance sheet information, has been restated
for the discontinued operations of Wilson Automation.
<TABLE>
<CAPTION>
(In thousands, except
per share amounts) 1998 1997 1996 1995 1994
Operating Results
<S> <C> <C> <C> <C> <C>
Precision Machined Products:
Sales $138,784 $ 60,471 $ 48,439 $42,382 $32,183
Operating income 15,042 6,157 4,525 4,865 2,777
Rubber and Plastic:
Sales 49,238 48,517 32,447 17,165 14,733
Operating income (loss) 1,213 3,172 2,647 1,532 1,693
Special Machines:
Sales 18,198 21,860 30,858 30,626 27,200
Operating income
(loss) from continuing operations 549 2,005 3,972 3,396 (2,334)
Consolidated:
Sales 206,220 130,848 111,744 90,173 74,116
Gross margin 33,965 23,765 22,657 16,618 11,069
Interest expense 10,821 2,070 1,787 1,504 1,111
Income (loss) from
continuing operations (1,159) 3,890 3,558 2,391 (850)
Per share income (loss)
from continuing operations
- basic and diluted (1) (0.23) 0.79 0.72 0.49 (0.17)
Net income (loss) (1,159) 3,890 (1,145) 881 (2,202)
Net income (loss) per share
- basic and diluted (1) (0.23) 0.79 (0.24) 0.18 (0.45)
Dividends per share (1) 0.05 0.19 0.19 0.19 0.19
Financial Position
Working capital $ 29,042 $ 17,938 $ 14,951 $26,575 $32,186
Current ratio 1.88 1.84 1.87 2.63 2.66
Net property, plant and equipment 53,837 28,119 23,131 24,518 22,793
Total assets 212,537 90,883 77,499 77,553 84,836
Total debt 143,467 33,100 25,400 26,200 31,500
Shareholders' equity 25,529 27,415 24,441 25,909 25,157
Debt as percent of total capitalization 84.9% 54.7% 51.0% 50.3% 55.6%
Other Financial Data
Shareholders' equity per share (1) $ 5.17 $ 5.55 $ 4.96 $ 5.27 $ 5.12
Depreciation and amortization
from continuing operations 9,185 4,280 3,622 2,850 2,235
</TABLE>
35
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C> <C>
Earnings before interest, taxes,
depreciation and amortization
from continuing operations 18,425 12,583 10,403 8,204 1,585
Capital expenditures from
continuing operations 8,123 3,539 2,946 4,580 4,568
Weighted average shares outstanding (1) 4,942 4,940 4,923 4,913 4,895
</TABLE>
(1) Share and per share data have been restated to reflect a 5% stock dividend
declared on June 11, 1997.
36
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis of financial condition and
results of operations ("MD&A") should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere herein.
Overview
The Company is organized into three operating segments: the Precision Machined
Products segment, the Rubber and Plastic segment and the Special Machines
segment. The Precision Machined Products segment produces transmission,
powertrain and engine components and assemblies for the automotive, medium and
heavy duty truck, and agricultural vehicle industries. The Rubber and Plastic
segment produces cosmetic and functional seals and boots and functional engine
compartment products primarily for the automotive industry. The Special Machines
segment designs and manufactures welding, assembly, forming, heat treating and
testing machinery and equipment for the automotive, appliance and other
industries.
The last three fiscal years have marked a period of significant change and
transition for the Company. The Company completed three acquisitions in the
Rubber and Plastic segment during 1996: Boramco, Inc. and Rubright, Inc. on
January 2, 1996 and Production Rubber Products, Inc. on April 1, 1996. These
acquisitions were combined with Midwest Rubber, a division acquired in fiscal
1992, to strengthen the Company's market position in this segment and to create
the critical mass management considers necessary to effectively provide the
engineering support, innovative products, and product line breadth required to
continue to meet its customers' needs. The Rubber and Plastic segment was
further enhanced with a fourth acquisition, Plastronics Plus, Inc.
("Plastronics"), in January 1997.
Consistent with management's strategy of reducing the impact on the Company of
the volatility of results of the Special Machines segment, the Company completed
the sale of two of the three divisions within this segment in fiscal 1996. On
May 6, 1996, the Company sold the business and certain assets of its Wilson
Automation ("Wilson") division. The Wilson divestiture was accounted for as a
discontinued operation, and, accordingly, the results of operations of Wilson
have been removed from continuing operations in the Consolidated Statements of
Income and related Notes and reclassified to discontinued operations for fiscal
1996 and prior years. Effective October 21, 1996, Newcor also sold its Newcor
Machine Tool ("NMT") division, which manufactured multi-stationed metal cutting
machines and CNC lathes.
The Company's strategy to build its Precision Machined Products segment as a
high volume automotive supplier took a significant step forward as a result of
the following actions. On March 6, 1997 the Company sold its Eonic, Inc.
("Eonic") division that was principally a low growth, low volume manufacturer of
industrial cams and camshafts. On December 23, 1997, the Company purchased the
assets and business of Machine Tool & Gear, Inc. ("MT&G") for approximately
$27.3 million, and assumed approximately $5.8 million of debt, which was
subsequently retired. MT&G manufactures differential pinion and side gears,
output shafts and rear axle shafts for the automotive industry. On March 4,
1998, the Company acquired the common stock of the three companies comprising
The Deco Group ("Deco") for approximately $55.0 million and the common stock of
Turn-Matic, Inc. ("Turn-Matic") for approximately $17.0 million, concurrent with
the issuance of $125 million of 9.875% Senior Subordinated Notes due 2008 (the
"Notes"). Deco manufactures high-volume, precision-machined engine and
powertrain components and assemblies for the medium and heavy truck and
automotive industries, while Turn-Matic manufactures high volume, precision
machined engine components and assemblies for the automotive industry.
37
<PAGE> 4
Results of Continuing Operations
The following table illustrates the factors causing year-to-year sales trends by
segment, including the effect of flow through sales, acquisitions and
divestitures, and net incremental business from operations owned throughout each
year presented. The flow through sales were caused when a customer that had been
providing material to the Company decided to have the Company purchase the
material and include the value of the material in the selling price.
<TABLE>
<CAPTION>
PRECISION
MACHINED RUBBER AND SPECIAL
(in millions) PRODUCTS PLASTIC MACHINES TOTAL
<S> <C> <C> <C> <C>
1996 Sales $ 48.4 $32.4 $30.9 $111.7
Flow through sales 14.5 14.5
Acquisitions 13.2 13.2
Divestitures (10.4) (6.5) (16.9)
Net incremental business 8.0 2.9 (2.6) 8.3
--------------------------------------------------------------------------
1997 Sales $ 60.5 $48.5 $21.8 $130.8
Acquisitions 85.1 85.1
Net decrease in business (6.8) 0.7 (3.6) (9.7)
--------------------------------------------------------------------------
1998 Sales $138.8 $49.2 $18.2 $206.2
==========================================================================
</TABLE>
Fiscal 1998 Compared with Fiscal 1997
The Company achieved record sales in 1998 of $206.2 million, an increase of
$75.4 million, or 57.6%, from 1997 sales of $130.8 million. Sales for the
Precision Machined Products segment increased $78.3 million, or 129.4%, to
$138.8 million, sales for the Rubber and Plastic segment increased $0.7 million,
or 1.4%, to $49.2 million, while sales for the Special Machines segment
decreased $3.6 million, or 16.5% to $18.2 million. The increase in sales for the
Precision Machined Products segment was primarily due to the recent acquisitions
of MT&G, Deco and Turn-Matic (referred to collectively as the "Acquisitions"),
which had aggregate sales of approximately $85.1 million during 1998, partially
offset by approximately $6.8 million of decreased product sales within existing
divisions mainly caused by the downturn in the agricultural machined components
market that began during July 1998. The increase in sales for the Rubber and
Plastic segment was primarily due to the acquisition of Plastronics in January
1997, partially offset by the effects of the General Motors strike during the
third quarter of 1998. Sales decreases within the Special Machines segment were
due to insufficient new orders to sustain the business that was achieved during
1997.
Consolidated gross profit increased $10.2 million to $34.0 million in 1998 from
$23.8 million in 1997. The increase in gross profit is attributable to the
increase in sales described above, partially offset by a decrease in
consolidated gross margin. Consolidated gross margin decreased to 16.5% in 1998
from 18.2% in 1997. The decrease in margin was primarily attributable to several
factors. High hourly labor turnover, particularly in the Rubber and Plastic
segment, reduced production efficiency significantly in the first quarter of
1998. Although turnover remained relatively high due to full employment, actions
taken to mitigate turnover have resulted in lower labor turnover since the first
quarter of 1998. In addition, a vehicle assembly line changeover at a customer
of the Precision Machined Products segment and pricing issues on certain coated
metal parts produced by the Rubber and Plastic segment resulted in temporary
losses of gross margin during the year. The customer assembly line changeover
was completed and the pricing issues were resolved with the customer in the
first half of 1998. Underabsorbed overhead in the third quarter that resulted
from low GM strike related production schedules and in the fourth quarter due to
much lower agricultural machined components production schedules also adversely
impacted gross margins. Finally, the Special Machines segment's low level of
sales and slow rate of new orders in the first half of 1998 caused further
reductions in gross margin during 1998. Although the Special Machines segment's
rate of new orders did improve during the second half of 1998, the segment's
sales and gross margin will not benefit from this new business until fiscal 1999
due to the relatively long lead time required to complete the orders.
Selling, general and administrative expenses ("SG&A") increased to $20.8 million
in 1998 from $14.9 million in 1997. SG&A as a percentage of sales decreased to
10.1% in 1998 from 11.4% in 1997. The increase in SG&A expense was primarily due
to the acquisitions in the Precision Machined Products segment, which added
approximately $6.0 million of SG&A expense in 1998. This increase was partially
offset by lower employee related costs. The primary reason for the decrease in
SG&A as a percentage of sales was the sales increase described above.
38
<PAGE> 5
Amortization expense increased to $3.5 million in 1998 from $0.9 million in 1997
due to the Acquisitions.
Operating income (loss) by segment in each year was as follows (in thousands):
<TABLE>
<CAPTION>
10/31/98 10/31/97 10/31/96
-------- -------- --------
<S> <C> <C> <C>
Precision Machined Products 15,042 6,157 4,525
Rubber and Plastic 1,213 3,172 2,647
Special Machines 549 2,005 3,972
Corporate (3,684) (2,449) (2,936)
Amortization Expense (3,477) (879) (603)
Nonrecurring gain (loss) (403) 297 (824)
------ ------ ------
Total operating income 9,240 8,303 6,781
====== ====== ======
</TABLE>
Consolidated operating income increased $0.9 million to $9.2 million in 1998
from $8.3 million in 1997, and consolidated operating margin decreased to 4.5%
of sales in 1998 from 6.3% of sales in 1997.
Operating income for the Precision Machined Products segment increased $8.9
million to $15.0 million in 1998 from $6.2 million in 1997. Operating margin
increased to 10.8% of segment sales in 1998 from 10.2% in 1997. The increase in
operating income was primarily due to the Acquisitions. Operating income and
operating margins at existing divisions within this segment were down when
compared with 1997 primarily due to the effect of lower sales caused by customer
schedule reductions, mainly for the Company's agricultural industry machined
components.
Operating income for the Rubber and Plastic segment decreased $2.0 million to
$1.2 million in 1998 from $3.2 million in 1997. Operating margin decreased to
2.5% of sales in 1998 from 6.5% of segment sales in 1997. The decrease in
operating income was primarily due to the loss of gross margin associated with
the General Motors strike during the third quarter of 1998, operational
inefficiencies during the first half of 1998 from high labor turnover caused by
full employment in local economies and increased costs related to the start of
new parts production during the first half of 1998. The high labor turnover did
improve during the second half of 1998.
Operating income for the Special Machines segment decreased $1.5 million to $0.5
million in 1998 from $2.0 million in 1997. Operating margin decreased to 3.0% of
segment sales in 1998 from 9.2% of segment sales in 1997. The decrease in
operating income and margin was primarily due to the decline in sales.
Consolidated operating income was impacted by a nonrecurring net loss of $0.8
million resulting from a plant consolidation program in the Rubber and Plastic
segment and separation costs for the former chief executive officer, partially
offset by a gain of $0.4 million related to the sale of the land and building
where the Company's NMT division was located prior to its being sold in October
1996. Nonrecurring items in 1997 included a net gain on the sale of a building
of $1.0 million, which was partially offset by a $0.7 million loss on the sale
of Eonic.
Interest expense was $10.8 million and $2.1 million in 1998 and 1997,
respectively. The increase in interest expense was primarily due to the issuance
of the Notes to finance the Acquisitions. The effective tax rate was 33.9% in
1998 and 35.3% in 1997.
Fiscal 1997 Compared with Fiscal 1996
The Company achieved record sales in 1997 of $130.8 million, an increase of
$19.1 million, or 17.1%, from 1996 sales of $111.7 million. Sales for the
Precision Machined Products segment increased $12.1 million, or 24.8%, to $60.5
million, sales for the Rubber and Plastic segment increased $16.1 million, or
49.5%, to $48.5 million, while sales for the Special Machines segment decreased
$9.1 million, or 29.2% to $21.8 million. The increase in sales for the Precision
Machined Products segment was due to approximately $8.0 million of increased
product sales within existing divisions and flow through sales of material of
approximately $14.5 million, partially offset by the effect of $10.4 million in
1996 sales attributable to the divested Eonic division. The $14.5 million
increase from flow through sales occurred because a customer that had been
providing material to the Company decided to have the Company purchase the
material and include the value of the material in the selling price. Without the
flow through sales, the Company's overall sales
39
<PAGE> 6
would have increased $4.6 million, or 4.1%, over 1996 sales. The increase in
sales for the Rubber and Plastic segment was primarily due to the inclusion of a
full year of results for three rubber and plastic component companies acquired
during the first two quarters of fiscal 1996, as well as the January 1997
acquisition of Plastronics. Additional sales from the four acquired Rubber and
Plastic segment companies aggregated approximately $13.2 million during 1997.
The remaining growth within the Rubber and Plastic segment of $2.9 million was
due to incremental new business at the existing division within this segment.
Sales decreases within the Special Machines segment were due to the effect of
$6.5 million in 1996 sales attributable to the divested NMT division that was
sold during 1996 and a $2.6 million sales decrease at the remaining division
within this segment ("Bay City"). The sales decrease at the Bay City division
was due to insufficient new orders to sustain the business that was achieved
during 1996.
Consolidated gross profit increased $1.1 million to $23.8 million in 1997 from
$22.7 million in 1996. The increase in gross profit is attributable to the
increase in sales, partially offset by a decrease in consolidated gross margin.
Consolidated gross margin decreased to 18.2% in 1997 from 20.3% in 1996. The
decrease in margin was primarily attributable to the effect of the $14.5 million
of flow through material sales that the Precision Machined Products segment
purchased in 1997 rather than receiving from the customer during 1996. These
sales generated $0.7 million of incremental gross profit. Other factors that
adversely impacted margin were the decline in sales in the Special Machines
segment (which has generally commanded higher margins than other segments), and
reduced margins due to product mix within this segment. In addition, gross
margin within the Rubber and Plastic segment was negatively impacted by
production inefficiencies associated with high labor turnover caused by
relatively full employment and increased costs associated with starting
production on new parts for the 1998 model year. High labor turnover continued
to affect certain businesses in the Rubber and Plastic segment in 1998, as
described above. Partially offsetting margin reductions were operating
performance gains that resulted from the Company's continuous improvement
programs at certain of the Company's divisions, particularly within the
Precision Machined Products segment. The genesis of the Company's commitment to
continuous improvement began in late 1995 when a business operating system (the
"Newcor Operating System") was introduced with an emphasis on the use of
continuous improvement tools such as cellular manufacturing, one-piece flow,
value engineering, kaizen, and team-oriented problem solving. As is common in
the automotive supplier industry, certain of the Company's long-term contracts
required price reductions over the term of the contract. These price reductions
were largely offset by the impact of pricing on new products and cost reductions
related to the continuous improvement programs.
SG&A increased to $14.9 million in 1997 from $14.5 million in 1996. SG&A as a
percentage of sales decreased to 11.4% in 1997 from 13.0% in 1996. The increase
in SG&A expense was primarily due to the acquisitions in the Rubber and Plastic
segment, which added approximately $2.7 million of SG&A expense in 1997, largely
offset by an approximate $2.3 million reduction due to the divestitures of Eonic
and NMT. The remaining increase in SG&A was principally due to expenditures
incurred to evaluate and select hardware and software and begin the
implementation of a company-wide information system and train employees in the
Newcor Operating System. The primary reason for the decrease in SG&A as a
percentage of sales was the sales increase described above.
Amortization expense increased $0.3 million to $0.9 million in 1997 from $0.6
million in 1996, as a result of the four acquisitions during 1997 and 1996.
Consolidated operating income increased $1.5 million to $8.3 million in 1997
from $6.8 million in 1996, and consolidated operating margin increased to 6.3%
of sales in 1997 from 6.1% of sales in 1996.
Operating income for the Precision Machined Products segment increased $1.7
million to $6.2 million in 1997 from $4.5 million in 1996. Operating margin
increased to 10.2% of segment sales in 1997 from 9.3% in 1996. The increase in
operating income was due to $0.7 million of operating income from the $14.5
million of flow through sales of previously provided customer material as
described above, incremental income associated with new business and the
elimination of significant start up costs that were incurred during 1996 for
certain new business and the reduction of controllable variable costs through
the continued implementation of the Newcor Operating System. The increase was
partially offset by the effect of $0.5 million in 1996 operating income, net of
a nonrecurring disposition charge of $0.2 million, attributable to the divested
Eonic division. Operating margins increased due to the elimination of
significant start up costs that affected 1996 results and implementation of the
Newcor Operating System as described above. The increase in operating margins
within this segment was partially offset by the lower margin on the $14.5
million of flow through sales described above.
Operating income for the Rubber and Plastic segment increased $0.6 million to
$3.2 million in 1997 from $2.6 million in 1996. Operating margin decreased to
6.5% of segment sales in 1997 from 8.0% of segment sales in 1996. The increase
in operating income was due to incremental income from the acquisitions
described above, largely offset by the effects of production inefficiencies
associated with high labor turnover caused by relatively full employment and
increased costs associated with starting production on
40
<PAGE> 7
new parts for the 1998 model year. These developments, and, to a lesser extent,
pricing issues on certain coated metal parts produced by the segment, resulted
in the operating margin reduction.
Operating income for the Special Machines segment decreased $2.0 million to $2.0
million in 1997 from $4.0 million in 1996. Operating margin decreased to 9.2% of
segment sales in 1997 from 12.9% of segment sales in 1996. The decrease in
operating income and margin was primarily due to the decline in sales and a
shift in product mix at Bay City, the remaining division in this segment.
Consolidated operating income benefited from a net gain on the sale of a
building of $1.0 million, which was partially offset by a $0.7 million loss on
the sale of Eonic.
Interest expense was $2.1 million and $1.8 million in 1997 and 1996,
respectively. The increase in interest expense was due to additional debt
incurred to finance the acquisitions in the Rubber and Plastic segment. The
effective tax rate was 35.3% in 1997 and 31.2% in 1996. The 1996 rate was
favorably impacted by the final settlement of an IRS audit.
Liquidity and Capital Resources
The Company's 1998 net cash inflow from continuing operations was primarily the
result of depreciation and amortization expense offset by the loss from
continuing operations. The positive cash flow from continuing operations of $7.1
million and other cash inflows of $125.0 million from the issuance of the Senior
Subordinated Notes due 2008 and $1.6 million from the sale of capital assets,
primarily a building, were partially offset by cash outflows of $102.0 million
to finance acquisitions, $14.6 million to repay debt, $8.1 million to purchase
capital equipment and $4.8 million of issuance costs for the Senior Subordinated
Notes due 2008.
Effective January 15, 1998, the Company's revolving credit facility with a major
U.S. bank was amended and restated to become the Senior Credit Facility and was
increased to provide total revolving credit availability of $50.0 million
concurrent with completion of the issuance of the Notes on March 4, 1998.
Availability of funds under the Senior Credit Facility is subject to
satisfaction of certain financial ratios and other conditions. At October 31,
1998, the Company had $3.2 million outstanding under its Senior Credit Facility.
The Senior Credit Facility covenant related to the ratio of funded debt to
earnings before interest, taxes, depreciation and amortization limited the
borrowing availability to $22.3 million at October 31, 1998. The Senior Credit
Facility is collateralized by substantially all of the Company's non-real estate
assets and by Rochester Gear, Inc.'s real estate. The current expiration of the
Senior Credit Facility is February 28, 2001.
The Company is highly leveraged as a result of the Notes. The Company's ability
to make scheduled payments of principal of, or to pay the interest on, or to
refinance, its indebtedness (including the Notes) or to fund planned capital
expenditures will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control.
The Company believes that, through a combination of cash flow from operations
and available cash, together with the available credit under the Senior Credit
Facility, it will have adequate cash available to meet its anticipated needs for
fiscal 1999. However, there can be no assurance that the Company's business will
generate sufficient cash flow from operations, that anticipated growth
opportunities and operating improvements will be realized or that future
borrowings will be available under the Senior Credit Facility in an amount
sufficient to enable the Company to service its indebtedness.
During fiscal 1997 and the first quarter of 1998, the Company continued to pay a
quarterly cash dividend of $.05 per share of common stock. Total dividends paid
were $1.0 million in 1997 and $0.2 million in the first quarter of 1998. The
terms of the Notes required suspension of the cash dividend.
Other Financial Data/Information
On a pro-forma basis as if Newcor had completed the acquisitions of MT&G, Deco
and Turn-Matic at November 1, 1997, the Company's sales, operating income,
interest expense, depreciation, amortization, and capital expenditures for the
quarter and year ended October 31, 1998 would have been as follows.
41
<PAGE> 8
<TABLE>
<CAPTION>
Period Ended October 31, 1998
Quarter Year
------- ----
<S> <C> <C>
Sales $62,800 $241,700
Operating income 2,600 13,100
Interest expense 3,600 14,500
Depreciation 1,700 6,600
Amortization 1,100 4,500
Capital expenditures 4,600 9,100
</TABLE>
Recent Developments
On November 6, 1998, the board of directors of Newcor approved changing the
Company's annual reporting period from a fiscal year ending October 31 to a
calendar year ending December 31. This change will result in a short period
report for both financial statement and tax purposes for the period from
November 1, 1998 to December 31, 1998. The first full year to be reported on a
calendar year basis will be for the year ending December 31, 1999.
Year 2000
The year 2000 ("Y2K") issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's systems or equipment that have date-sensitive software using only two
digits may recognize a date using "00" as the year 1900 rather than the year
2000. The resulting system failures or miscalculations may cause disruption of
operations, including the temporary inability to process transactions or send
and receive electronic data with third parties or engage in similar normal
business activities.
The Company began to address the Y2K issue in 1997 by identifying all systems
and equipment that could be affected by the Y2K issue. This process is
substantially complete. The Company is currently in the process of remediating
or replacing all identified non-compliant systems and equipment. For its
information technology, the Company is currently in the process of replacing old
non-compliant systems with a new Enterprise Resource Planning ("ERP") computer
system that is Y2K compliant. Capitalized costs related to the system
implementation, which were incurred in the last two fiscal years, approximated
$1.7 million as of October 31, 1998. Management currently estimates that
implementation of the new ERP system is approximately 25% complete, with
approximately 50% of the expected costs incurred for the project. Projected
completion of the new ERP system at locations that use non-compliant systems is
the second half of 1999. Costs incurred for remediation of non-information
technology systems and equipment, including production equipment, telephones,
security and electrical, are not expected to be material. Many of these systems
are currently Y2K compliant. The Company's Y2K efforts are funded through
operating cash flow.
In 1997 the Company began communicating with its significant suppliers and large
customers to determine the extent to which the Company is vulnerable to such
parties' failure to remediate their own Y2K issues. Management continues to
evaluate the responses received and their remediation plans. The Company's
evaluation of these remediation plans and its assessment of the risk that any
issues identified could have a material adverse impact on the Company could have
a significant impact on its development of a contingency plan.
Although a failure on the part of the Company's significant suppliers or large
customers to effectively remediate their Y2K issues in a timely manner may
affect Company operations, management does not believe that any material
exposure to significant business interruption exists as a result of Y2K
compliance issues. Therefore, the Company has not adopted any formal contingency
plan. While management believes that the estimated cost of becoming Y2K
compliant is not significant to the Company's financial results, failure to
complete all the work in a timely manner could result in material financial
risk. While management expects all planned work to be completed, there can be no
guarantee that all systems will be in compliance by the year 2000, that the
systems of the Company's significant suppliers and large customers will be
converted in a timely manner, or that contingency planning will be able to fully
address all potential interruptions. Therefore, Y2K issues could cause delays in
the Company's ability to produce or ship its products, process transactions, or
otherwise conduct its business.
Cautionary Statements Under the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995.
This MD&A contains "forward-looking statements" within the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. A number of
factors could cause actual results to differ materially from those included in
or suggested by such forward-looking statements, including without limitation:
the cyclical nature of the industries served by the Company, all of which have
encountered significant downturns in the past; the level of production by and
demand from the Company's principal customers, upon which the Company is
substantially dependent, including the three major domestic automobile
manufacturers, American Axle & Manufacturing, Detroit Diesel Corporation and
Deere & Company; whether, when and to what extent expected orders materialize;
42
<PAGE> 9
whether the Company will be able to successfully launch new programs; the impact
on the Company of actions by its competitors, some of which are significantly
larger and have greater financial and other resources than the Company;
developments with respect to contingencies, including environmental matters,
litigation and retained liabilities from businesses previously sold by the
Company; and the extent to which the Company's new ERP computer system performs
as anticipated and the accuracy of the information supplied by the Company's
suppliers and customers concerning their year 2000 readiness. All
forward-looking statements in this MD&A are qualified by such factors, as well
as by the further discussion of these and other risks and uncertainties of the
Company's business provided in the Business section of the Company's 1998 Form
10-K. The Company disclaims any obligation to update any such forward-looking
statements.
43
<PAGE> 10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Newcor, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Newcor, Inc.
and its subsidiaries at October 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Detroit, Michigan
December 8, 1998
44
<PAGE> 11
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended October 31, 1998 1997 1996
<S> <C> <C> <C>
Sales $206,220 $130,848 $111,744
Cost of sales 172,255 107,083 89,087
-------- -------- --------
Gross margin 33,965 23,765 22,657
Selling, general and administrative expense 20,845 14,880 14,449
Amortization expense 3,477 879 603
Nonrecurring items, net (gain) loss 403 (297) 824
-------- -------- --------
Operating income from continuing operations 9,240 8,303 6,781
Other income (expense):
Interest expense (10,821) (2,070) (1,787)
Other (172) (224) 178
-------- -------- --------
Income (loss) from continuing operations before income taxes (1,753) 6,009 5,172
Provision (benefit) for income taxes (594) 2,119 1,614
-------- -------- --------
Income (loss) from continuing operations (1,159) 3,890 3,558
-------- -------- --------
Discontinued operations:
Loss from discontinued operations, net of income tax
benefit of $611 -- -- (1,203)
Loss on sale of discontinued operations, net of income
tax benefit of $1,800 -- -- (3,500)
-------- -------- --------
Loss from discontinued operations -- -- (4,703)
-------- -------- --------
Net income (loss) $ (1,159) $ 3,890 $ (1,145)
======== ======== ========
Amounts per share of common stock - basic and diluted:
Income (loss) from continuing operations $ (0.23) $ 0.79 $ 0.72
Loss from discontinued operations -- -- (0.96)
-------- -------- --------
Net income (loss) $ (0.23) $ 0.79 $ (0.24)
======== ======== ========
Weighted average common shares outstanding 4,942 4,940 4,923
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
45
<PAGE> 12
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Capital in Other Total
Common Excess Comprehensive Retained Shareholders'
Stock of Par Income Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1995 $4,679 $ 395 $(536) $21,371 $25,909
Decrease in unfunded
pension liability 481 481
Net loss (1,145) (1,145)
-------
Comprehensive income (loss), net of tax (664)
-------
Cash dividends, $.20 per share (938) (938)
Shares issued under
employee stock plans 18 116 134
------ ------ ----- ------- -------
Balance, October 31, 1996 4,697 511 (55) 19,288 24,441
Increase in unfunded
pension liability (44) (44)
Net income 3,890 3,890
-------
Comprehensive income, net of tax 3,846
-------
Cash dividends, $.20 per share (954) (954)
Shares issued under
employee stock plans 10 72 82
Stock dividend, 5% 235 1,675 (1,910)
------ ------ ----- ------- -------
Balance, October 31, 1997 4,942 2,258 (99) 20,314 27,415
Increase in unfunded
pension liability, net of tax (481) (481)
Net loss (1,159) (1,159)
-------
Comprehensive income (loss), net of tax (1,640)
-------
Cash dividends, $.05 per share (246) (246)
------ ------ ----- ------- -------
Balance, October 31, 1998 $4,942 $2,258 $(580) $18,909 $25,529
====== ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
46
<PAGE> 13
NEWCOR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
October 31, 1998 1997
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,539 $ 34
Accounts receivable 35,175 22,523
Inventories 14,014 8,084
Prepaid expenses and other 8,031 7,219
Deferred income taxes 1,423 1,453
-------- -------
Total current assets 62,182 39,313
Property, plant and equipment, net of
accumulated depreciation 53,837 28,119
Prepaid pension expense 2,472 2,774
Cost in excess of assigned value of
acquired companies, net of amortization 85,861 16,080
Debt issuance costs and other non-current assets 8,185 4,597
-------- -------
Total assets $212,537 $90,883
======== =======
Liabilities
Current Liabilities:
Current portion of long-term debt $ 2,000 $ 833
Accounts payable 21,072 14,874
Accrued payroll and related expenses 5,315 3,584
Other accrued liabilities 4,753 2,084
-------- -------
Total current liabilities 33,140 21,375
Long-term debt 141,467 32,267
Postretirement benefits other than pensions 6,420 6,338
Pension liability and other 5,981 3,488
-------- -------
Total liabilities 187,008 63,468
-------- -------
Shareholders' Equity
Preferred stock, no par value.
Authorized: 1,000 shares. Issued: None
Common stock, par value $1 per share.
Authorized: 10,000 shares.
Issued: 4,942 shares in 1998 and 1997 4,942 4,942
Capital in excess of par 2,258 2,258
Accumulated other comprehensive income (580) (99)
Retained earnings 18,909 20,314
-------- -------
Total shareholders' equity 25,529 27,415
-------- -------
Total liabilities and shareholders'
equity $212,537 $90,883
======== =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
47
<PAGE> 14
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the years ended October 31, 1998 1997 1996
<S> <C> <C> <C> <C>
Operating Activities
Income (loss) from continuing operations $ (1,159) $ 3,890 $ 3,558
Adjustments to reconcile income (loss) from
continuing operations to cash provided by
continuing operating activities:
Loss on sale of businesses -- 711 824
Depreciation 5,708 3,401 3,019
Amortization 3,477 879 603
Deferred income taxes 1,340 692 (637)
Pensions (321) (125) (893)
Gain on sale of capital assets (331) (1,025) (168)
Other - net (154) 888 (27)
Changes in operating assets and liabilities:
Accounts receivable 751 (3,258) 444
Inventories (225) 1,498 747
Other current assets (679) 320 (2,004)
Accounts payable (3,360) 1,741 2,921
Accrued liabilities 2,032 (1,170) (589)
--------- -------- --------
Cash provided by continuing operating activities 7,079 8,442 7,798
--------- -------- --------
Cash provided by (used in) discontinued operations (370) (1,117) 5,931
--------- -------- --------
Investing Activities
Capital expenditures (8,123) (3,539) (2,946)
Proceeds from sale of businesses -- 1,500 1,984
Acquisitions, net of cash acquired (101,981) (14,581) (11,578)
Proceeds from sale of capital assets 1,628 2,467 420
--------- -------- --------
Net cash used in investing activities (108,476) (14,153) (12,120)
--------- -------- --------
Financing Activities
Net borrowings (repayments) on revolving credit line (13,800) 7,700 (10,800)
Term note proceeds -- -- 10,000
Repayment of term note (833) -- --
Issuance of senior subordinated notes 125,000 -- --
Subordinated notes issuance costs (4,849) -- --
Shares issued under employee stock plans -- 82 134
Cash dividends paid (246) (954) (938)
--------- -------- --------
Net cash provided by (used in) financing activities 105,272 6,828 (1,604)
--------- -------- --------
Increase in cash 3,505 -- 5
Cash and cash equivalents, beginning of year 34 34 29
--------- -------- --------
Cash and cash equivalents, end of year $ 3,539 $ 34 $ 34
========= ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
48
<PAGE> 15
NEWCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. ACCOUNTING POLICIES:
Description of the Business - Newcor, Inc. and its subsidiaries (the
"Company") design and manufacture precision machined components and assemblies
and custom rubber and plastic products primarily for the automotive and
agricultural vehicle markets. The Company is also a supplier of standard and
specialty machines and equipment systems mainly for the automotive and appliance
industries.
Principles of Consolidation - The consolidated financial statements
include the accounts of Newcor, Inc. and all subsidiaries. All significant
intercompany accounts and transactions are eliminated.
Cash Equivalents - The Company considers all highly-liquid investments
with an initial maturity of three months or less to be cash equivalents.
Inventory Valuation - Inventories are stated at the lower of cost or
net realizable value. Costs, other than those specifically identified to
contracts, are determined primarily on the first-in, first-out ("FIFO") basis.
Contract Accounting - The percentage of completion method of accounting
is used by the Company's Special Machines segment. Sales and gross profit are
recognized as work is performed based on the relationship between actual costs
incurred and total estimated costs at completion. Sales and gross profit are
adjusted prospectively for revisions in estimated total contract costs and
contract values. Estimated losses are recognized when determinable.
Property, Plant and Equipment - Property, plant and equipment is stated
at cost and is depreciated using the straight-line method. The general range of
lives is fifteen to thirty years for building and land improvements and four to
ten years for machinery, office equipment and vehicles.
Cost in Excess of Assigned Value of Acquired Companies - The costs of
acquired companies that exceed the assigned value at dates of acquisition
(goodwill) are generally being amortized over a twenty-year period using the
straight-line method. Several factors are used to evaluate the recoverability of
goodwill, including management's plans for future operations, recent operating
results and each division's projected undiscounted cash flows. Based on this
evaluation, there was no permanent impairment related to acquired goodwill at
October 31, 1998 and 1997. Accumulated amortization was $6,265 and $2,715 at
October 31, 1998 and 1997, respectively.
Asset Impairment - The Company recognizes impairment losses for assets
or groups of assets where the sum of the estimated future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the related asset or group of assets. The amount of the impairment loss is the
excess of the carrying amount over the fair value of the asset or group of
assets being measured. Based on management's evaluation, there were no
impairment losses recognized during the years ended October 31, 1998, 1997 and
1996.
Debt Issuance Costs - Costs incurred to issue new debt are being
amortized over the life of the related debt issuance, ranging from 3 to 10
years. Accumulated amortization was $593 and $227 at October 31, 1998 and 1997,
respectively.
Income Taxes - Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
Use of Estimates - The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires the Company
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Financial Instruments - The carrying amount of the Company's financial
instruments, which includes cash and cash equivalents, accounts receivable,
accounts payable and notes payable approximates their fair value at October 31,
1998 and 1997. The fair value of the Company's long-term debt was approximately
$124,000 at October 31, 1998. The carrying amount of the Company's long-term
debt approximated the fair value at October 31, 1997. Fair values have been
determined through information obtained from market sources and management
estimates.
Stock dividend - On June 11, 1997, the Company declared a 5% stock
dividend that was paid on September 12, 1997 to shareholders of record on August
14, 1997. The dividend was charged to retained earnings in the amount of $1,910.
Per share amounts and shares outstanding included in the accompanying
consolidated financial statements and notes are based on the increased number of
shares giving retroactive effect to the stock dividend.
Earnings per share - Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("FAS 128") established an updated standard for
computing and presenting earnings per share. FAS 128 was adopted in fiscal 1998
and did not result in a different reported earnings per share for the Company.
Segment Reporting - In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131"). This statement supercedes Statement of
Financial
49
<PAGE> 16
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. FAS 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption of FAS 131 did not affect on the Company's results of operations or
financial position.
Reclassifications - Certain items in prior years' financial statements
have been reclassified to conform with the presentation used in the year ended
October 31, 1998.
Change in fiscal year - The Company's fiscal year was from November 1
to October 31. On November 6, 1998, the board of directors of the Company
approved changing the Company's annual reporting period to a calendar year
ending December 31. This change will result in short period report for both
financial statement and tax purposes for the period from November 1, 1998 to
December 31, 1998. The first full year to be reported on a calendar year basis
will be for the year ending December 31, 1999.
2. FISCAL 1998 ACQUISITIONS:
On March 4, 1998, the Company purchased the common stock of Grand
Machining Company, Deco Technologies, Inc. and Deco International, Inc.
(collectively, "Deco") for approximately $55,000 in cash. Deco manufactures high
volume, precision machined components and assemblies for the medium and heavy
truck and automotive industries. Deco's products include rocker arm components
and assemblies, transmission shafts, axle shafts and thrust plates. The Company
made a $5,000 deposit to the Deco shareholders in December 1997. The balance of
the purchase price was paid in March 1998 using the proceeds from the Company's
issuance of $125,000 of 9.875% Senior Subordinated Notes due 2008 (the "Notes")
as described in Note 9. The acquisition was recorded using the purchase method
of accounting. The cost in excess of net assets acquired of approximately
$40,000 is being amortized on a straight-line basis over twenty years.
On March 4, 1998, the Company purchased the stock of Turn-Matic, Inc.
("Turn-Matic") for approximately $17,000 in cash. Contingent consideration of up
to $3,500 may be paid if profitability achieves certain levels over the next
five years. Turn-Matic manufactures high volume, precision machined components
and assemblies for the automotive industry. Turn-Matic's products include oil
filter adapters, main bearing caps and intake and exhaust manifolds. The
purchase was financed with the proceeds of the Notes as described in Note 9. The
acquisition was recorded using the purchase method of accounting. The cost in
excess of net assets acquired of approximately $9,000 is being amortized on a
straight-line basis over twenty years. Any contingent purchase price payments,
if required, will be recognized as additional cost in excess of the net assets
acquired and amortized over the remaining twenty years.
On December 23, 1997, the Company purchased the assets and business of
Machine Tool & Gear, Inc. ("MT&G") for approximately $27,250 plus the assumption
of approximately $5,800 of debt, which was subsequently retired. MT&G
manufactures differential pinion and side gears, output shafts and rear axle
shafts for the automotive industry. For this acquisition, the Company paid cash
of $2,500 in October 1997 and $3,100 in December 1997 and issued a promissory
note for $21,650, paying interest at 8%, for the balance of the purchase price
which was subsequently paid off on March 11, 1998 using the proceeds from the
Notes as described in Note 9. The acquisition was recorded using the purchase
method of accounting. The cost in excess of net assets acquired of approximately
$24,000 is being amortized on a straight-line basis over twenty years.
The 1998 and 1997 unaudited pro-forma results of operations as if Deco,
Turn-Matic and MT&G had been acquired at the beginning of fiscal 1997 would have
been as follows.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Sales $241,700 $242,600
======== ========
Net income (loss) $ (1,100) $ 4,600
======== ========
Net income (loss) per share - basic and diluted $ (0.22) $ 0.93
======== ========
</TABLE>
These pro-forma results do not purport to be indicative of the results
that would actually have occurred had the acquisitions been made at the
beginning of fiscal 1997 or which may occur in the future.
50
<PAGE> 17
3. FISCAL 1997 and 1996 ACQUISITIONS:
On January 10, 1997, the Company purchased for cash the common stock of
Plastronics Plus, Inc. ("Plastronics"), a Wisconsin corporation. Plastronics
primarily manufactures custom plastic injection-molded components for the
automotive industry. The purchase price was approximately $8,000 in cash plus
the assumption of $4,100 of Plastronics debt, which was subsequently retired.
The purchase was financed through the Company's existing line of credit
facility. The acquisition was accounted for using the purchase method of
accounting. The cost in excess of net assets acquired of approximately $4,000 is
being amortized on a straight-line basis over twenty years.
In December 1995, the Company signed three separate definitive
agreements to purchase for cash certain assets of three unrelated companies in
the molded rubber and plastic component parts industry. Each company primarily
manufactures parts for the automotive industry. Two of the acquisitions were
completed on January 2, 1996, and the third was completed on April 1, 1996. The
total purchase price for all three acquisitions was approximately $11,600. The
acquisitions were accounted for using the purchase method of accounting. The
cost in excess of net assets acquired of approximately $8,000 is being amortized
on a straight-line basis over twenty years.
4. DISCONTINUED OPERATIONS:
The Company sold the business and certain assets of its Wilson
Automation ("Wilson") division on May 6, 1996. All receivables, the land and
building, and certain liabilities were retained by the Company. The building was
leased to the buyer through April 30, 2001. Although assets were sold at
approximately net book value, accruals were established for curtailment of the
pension plan, employee separation costs, costs associated with the collection of
accounts receivable and additional liabilities related to contracts for which
the Company retained responsibility. These accruals coupled with the operating
loss from the measurement date (March 31, 1996) to the sale date resulted in a
net loss of $3,500 on the disposition of Wilson. The remaining accruals at
October 31, 1998 and 1997 are not material
The Company sold the Wilson land and building during 1997 for
approximately $2.3 million, net of selling expenses. The pre-tax net gain on
this disposition was $1,008 and has been recognized as a nonrecurring item in
the consolidated statements of income.
5. BUSINESS DISPOSITIONS:
On March 6, 1997, the Company sold the business and substantially all
assets of its Eonic operation. Although assets were sold at approximately net
book value, accruals were established for employee separation costs, costs
associated with the collection of accounts receivable and pension plan costs,
resulting in an additional $711 loss on disposition being recognized as a
nonrecurring item in the consolidated statements of income. The Company received
cash of $1,500, which was used to reduce long-term debt and a $816 note due over
six years and paying interest at the prime rate.
On October 21, 1996, the Company sold the business and substantially
all assets of its Newcor Machine Tool ("NMT") operation. Although assets were
sold at approximately net book value, accruals were established for employee
separation costs, costs associated with the collection of accounts receivable
and pension plan costs. The Company recorded a loss of $824 at October 31, 1996
for the loss on the sale of NMT and the estimated loss on disposition of Eonic.
The remaining accruals associated with the Eonic and NMT dispositions at October
31, 1998 and 1997 were not material. The Company sold the NMT land and building
during 1998 for approximately $1.4 million. The pre-tax gain on this disposition
was $362 and has been recognized as a nonrecurring item in the consolidated
statements of income.
6. INVENTORIES:
Inventories at October 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Costs and estimated earnings of uncompleted
contracts in excess of related billings
of $1,679 in 1998 and $1,066 in 1997 $ 3,244 $ 2,379
Raw materials 4,903 3,752
Work in process and finished goods 5,867 1,953
------- -------
$14,014 $ 8,084
======= =======
</TABLE>
Costs and estimated earnings of uncompleted contracts in excess of
related billings represents revenue recognized under the percentage of
completion method in excess of amounts billed.
51
<PAGE> 18
7. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at October 31, 1998 and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land and improvements $ 1,958 $ 1,096
Buildings 14,194 11,815
Machinery 49,212 25,457
Office and transportation equipment 5,703 3,078
Construction in progress 2,058 1,217
------- -------
73,125 42,663
Less accumulated depreciation 19,288 14,544
------- -------
$53,837 $28,119
======= =======
</TABLE>
8. OPERATING LEASES:
The Company leases certain manufacturing equipment and facilities,
office space and other equipment under lease agreements accounted for as
operating leases. Rent expense related to these leases aggregated approximately
$4,583, $1,342, and $866 in 1998, 1997, and 1996, respectively.
Future minimum rental payments for leases extending beyond one year
from October 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending
October 31, Amount
<S> <C>
1999 $ 5,506
2000 5,108
2001 4,622
2002 4,299
2003 4,071
Thereafter 6,327
-------
$29,933
=======
</TABLE>
9. CREDIT ARRANGEMENTS AND LONG-TERM DEBT:
A summary of long-term debt at October 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revolving credit line $ 3,200 $17,000
Term note 9,167 10,000
Limited obligation revenue bonds, variable
interest rate (average 3.7% in 1998 and
3.8% in 1997), payable January 1, 2008 6,100 6,100
Senior subordinated notes due 2008 125,000
-------- -------
$143,467 $33,100
======== =======
</TABLE>
On March 4, 1998, the Company completed the private placement of
$125,000 of 9.875% Senior Subordinated Notes due 2008, which were subsequently
exchanged for a substantially identical series of notes issued under the same
indenture and registered with the Securities Act of 1933 (either series, the
"Notes"). Interest on the Notes is payable semi-annually on March 1 and
September 1 of each year. The Notes will mature on March 1, 2008. The Notes are
unsecured and will be redeemable, in whole or in part, at the option of the
Company, on or after March 1, 2003. Proceeds from the Notes were used to finance
the Deco and Turn-Matic acquisitions, pay off the promissory note issued in
connection with the MT&G acquisition and pay down the Company's line of credit
facility.
52
<PAGE> 19
The Company's revolving credit agreement with a major U.S. bank was
amended on January 15, 1998 to allow the Company to increase total availability
to $50,000 upon satisfaction of certain conditions relating to the issuance of
the Notes. The rate of interest on outstanding borrowings is principally at the
Eurodollar base rate plus 1% (6.375% at October 31, 1998). Borrowings under the
credit agreement are primarily supported by Eurodollar notes principally with
maturities of three months or less. The revolving credit agreement is
collateralized by substantially all of the Company's non-real estate assets and
by Rochester Gear, Inc. real estate. The current expiration date for the
revolving credit agreement is February 28, 2001. During 1996, the Company
converted $10 million from the revolving credit agreement to a term note with a
fixed interest rate of 7.85%. The term note requires quarterly interest payments
through May 1998 and monthly interest and principal payments from June 1998
through May 2003.
The revolving credit agreement, the term note and the Notes require the
Company to comply with certain financial covenants including earnings before
interest, taxes, depreciation and amortization ("EBITDA"), total debt and
tangible net worth. In addition, the terms of the Notes required the Company to
suspend its cash dividend. The revolving credit facility covenant related to the
ratio of funded debt to EBITDA limited the borrowing availability to $22.3
million at October 31, 1998.
The Company's operating subsidiaries; Rochester Gear, Inc.,
Plastronics, Deco and Turn-Matic, are full and unconditional guarantors of
obligations issued under the Notes. The following summarized financial
information is derived from the consolidating financial statements of the
Company as of and for the years ended October 31, 1998, 1997 and 1996. No
intercompany balances or transactions occurred among the subsidiaries during the
periods presented.
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Current assets $ 24,700 $11,400 $ 3,200
======== ======= =======
Total assets $107,500 $30,800 $14,400
======== ======= =======
Current liabilities $ 15,300 $ 6,200 $ 2,800
======== ======= =======
Long-term debt $ 6,100 $ 6,100 $ 6,100
======== ======= =======
Sales $ 93,900 $29,200 $17,000
======== ======= =======
Operating income $ 13,100 $ 2,300 $ 1,000
======== ======= =======
</TABLE>
In September 1995, Rochester Gear, Inc., a wholly owned subsidiary of
the Company (the "Subsidiary"), entered into a loan agreement whereby $6,100 of
limited obligation refunding revenue bonds were issued. These bonds mature on
January 1, 2008 and are collateralized by the Subsidiary's land, building and
equipment and guaranteed by the Company.
Total interest payments aggregated $8,420, $2,114 and $2,109 in 1998,
1997 and 1996, respectively. Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
October 31, Amount
<S> <C>
1999 $ 2,000
2000 2,000
2001 5,200
2002 2,000
2003 1,167
Thereafter 131,100
--------
$143,467
========
</TABLE>
53
<PAGE> 20
10. INCOME TAXES:
Provision (benefit) for federal income taxes from continuing operations
is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Currently payable (refundable) $(1,934) $1,430 $ 940
Deferred, net 1,340 689 674
------- ------ ------
$ (594) $2,119 $1,614
======= ====== ======
</TABLE>
Significant components of the deferred tax assets and liabilities as of
October 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Accrued postretirement benefits $2,183 $2,408
Net operating loss carryforward 685 217
AMT and other credits 1,063 329
Accrued vacation and employee benefits 459 380
Costs related to sale of businesses 379 684
Other 484 447
------ ------
Total deferred tax assets 5,253 4,465
------ ------
Deferred tax liabilities:
Depreciation 3,664 2,658
Pensions 821 755
Goodwill 982 227
Other 117 147
------ ------
Total deferred tax liabilities 5,585 3,787
------ ------
Net deferred tax asset (liability) $ (332) $ 678
====== ======
</TABLE>
Reconciliation of income (loss) from continuing operations multiplied
by the statutory federal tax rate to reported income tax expense (benefit) is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income (loss) from continuing operations
multiplied by the statutory rate (34%) $(596) $2,043 $1,758
Nondeductible expenses 273 127 86
Foreign sales corporation (99) (33) (63)
Other items, net (172) (18) (167)
----- ------ ------
Income tax (benefit) expense $(594) $2,119 $1,614
===== ====== ======
Income taxes paid (refunded), net $ (15) $1,615 $ 550
</TABLE>
At October 31, 1998, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $2,015 that expire in 2018. In
addition, the Company has Alternative Minimum Tax and other credits of
approximately $1,063 at October 31, 1998 that do not expire.
54
<PAGE> 21
11. EMPLOYEE RETIREMENT BENEFITS:
Pension Plans:
The Company provides retirement benefits for certain employees under
several defined benefit pension plans. As a result of the acquisitions discussed
in Note 2, the Company has increased the number of its defined benefit pension
plans. Benefits from these plans are based on compensation, years of service and
either fixed dollar amounts per year of service or employee compensation during
the later years of employment. The assets of the plans consist principally of
cash equivalents, corporate and government bonds, and common and preferred
stocks. The Company's policy is to fund only amounts required to satisfy minimum
legal requirements.
The following tables summarize the funded status, net periodic pension
(benefit) expense and actuarial assumptions:
<TABLE>
<CAPTION>
1998 1997
Accumulated Assets Accumulated
Assets Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested benefit obligation $ 22,173 $ 9,469 $ 16,853 $ 8,321
Nonvested benefit obligation 209 478 214 249
-------- -------- -------- -------
$ 22,382 $ 9,947 $ 17,067 $ 8,570
Plan assets at fair value 24,384 6,933 23,826 7,438
-------- -------- -------- -------
Unfunded accumulated benefits $ 3,014 $ 1,132
Overfunded accumulated benefits $ 2,002 ======== $ 6,759 =======
======== ========
Actuarial present value of
projected benefit obligations $(24,221) $(10,384) $(18,514) $(8,570)
Plan assets at fair value 24,384 6,933 23,826 7,438
Unamortized net asset at transition (972) (87) (1,236) (109)
Unrecognized net (gain) loss and other 3,281 2,691 (1,302) 532
Additional minimum liability (2,541) (505)
-------- -------- -------- -------
Prepaid (accrued) pension expense $ 2,472 $ (3,388) $ 2,774 $(1,214)
======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net periodic pension (benefit) expense:
Service cost-benefits earned during the period $ 627 $ 460 $ 808
Interest cost on projected benefit obligation 2,159 1,968 1,938
Actual return on assets (241) (5,337) (4,045)
Amortization of net gain and deferral (2,679) 2,828 2,335
------- ------- -------
Net periodic pension (benefit) expense $ (134) $ (81) $ 1,036
======= ======= =======
Actuarial assumptions at end of year: 1998 1997 1996
Discount rates 6.75% 7.5% 8.0%
Expected return on plan assets 9.0% 9.0% 9.0%
Compensation increases 5.0% 5.0% 5.0%
</TABLE>
The sale of Wilson during 1996 resulted in Wilson employees no longer
earning additional benefits under the plans. As a result of the recognition of
prior service costs for these employees, the Company recognized a pre-tax
pension curtailment charge of approximately $400 as a component of the loss on
discontinued operations in 1996.
55
<PAGE> 22
Retiree Health Care and Life Insurance Benefits:
The Company is obligated to provide health care and life insurance
benefits to certain eligible retired employees; however, all postretirement
benefits other than pensions were discontinued for all employees who retired
after January 1, 1993. The plan obligation is unfunded but the accumulated
postretirement benefit obligation, as actuarially determined, has been fully
accrued for in the accompanying consolidated balance sheet. The medical plan
pays a stated percentage of most medical expenses, reduced for any deductible
and payments made by government programs or other group coverage. The cost of
providing these benefits is shared with the retirees. The cost sharing
arrangements limit the Company's future retiree medical cost increases to the
rate of inflation, as measured by the Consumer Price Index.
12. STOCK OPTION PLANS:
The Company has four stock option plans: a 1982 plan and a 1993 plan
which are expired except as to options still outstanding and two 1996 plans (the
"Non-Employee Directors Stock Option Plan" and the "Employee Incentive Stock
Plan"). Under the Non-Employee Directors Stock Option Plan, 105,000 common stock
options may be granted to non-employee directors. The Employee Incentive Stock
Plan provides for the use of several long-term incentive compensation tools for
key employees, including incentive stock options which are limited to a maximum
of 315,000 shares over the life of the Employee Incentive Stock Plan. The total
number of options that may be granted in any given fiscal year under the
Employee Incentive Stock Plan is determined as five percent of the outstanding
shares of the Company at the beginning of the fiscal year. Option prices for
both plans must not be less than the fair market value of the Company's stock on
the date granted. Options are exercisable over 10 years and vest at a rate of
25% each year, commencing in the second year. All options granted to date under
these plans have a grant/exercise price the same as the fair market value at the
date of grant. Options expire upon termination of employment or one year
following death or retirement.
The Company applies the intrinsic value based method to account for
stock options granted to employees. This method is set forth in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Under this method, no compensation expense is recognized on the grant date since
on that date the option price equals the market price of the underlying common
stock. Net income (loss) and net income (loss) per share for 1998, 1997 and 1996
would not have been materially different from reported amounts if compensation
expense had been determined based on the fair value method as set forth in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
Option activity for 1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 232,002 $ 7.83 164,487 $7.86 160,936 $7.63
Granted 176,000 9.39 73,815 8.00 16,695 9.01
Exercised - - - - (7,631) 5.13
Forfeited (7,494) 8.94 - - - -
Expired (6,957) 10.61 (6,300) 9.14 (5,513) 8.33
------- ------ ------- ----- ------- -----
Outstanding at end of year 393,551 8.50 232,002 $7.83 164,487 $7.86
======= ====== ======= ===== ======= =====
Exercisable at year end 133,649 91,062 80,703
======= ======= =======
</TABLE>
56
<PAGE> 23
The following table summarizes information about stock options
outstanding at October 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$4.28 - 6.42 2,183 2.1 $ 5.10 2,183 $ 5.10
$6.43 - 9.63 373,518 8.1 $ 8.39 113,616 $ 7.37
$9.64 - 14.45 17,850 5.4 $11.20 17,850 $11.20
------- -------
$4.28 - 14.45 393,551 7.9 $ 8.50 133,649 $ 7.85
======= =======
</TABLE>
13. SEGMENT REPORTING:
In 1998, the Company adopted FAS 131. Prior year information has been
restated to conform with the provisions of FAS 131. The Company manages and
reports its operating activities under three operating segments: Precision
Machined Products, Rubber and Plastic, and Special Machines. The Precision
Machined Products segment consists of automotive components and agricultural
equipment parts machined in dedicated manufacturing cells. The Rubber and
Plastic segment consists of molded rubber and plastic parts primarily for the
automotive industry. The Special Machines segment consists of standard
individual machines, as well as custom designed machines, all manufactured on a
made-to-order basis. Other is primarily composed of corporate activities.
Comparability of the information for the Precision Machined Products segment is
affected by the fiscal 1998 acquisitions described in Note 2.
The accounting policies of the segments are the same as those presented
in Note 1. There are no intersegment sales and management does not allocate all
corporate expenses to the segments. The Company evaluates the performance of its
segments and allocates resources to them based on operating income from
continuing operations. Information by operating segment is summarized below:
<TABLE>
<CAPTION>
Precision
Machined Rubber and Special
Products Plastic Machines Other Total
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers
1998 $138,784 $49,238 $18,198 $ 206,220
1997 60,471 48,517 21,860 130,848
1996 48,439 32,447 30,858 111,744
Operating income (loss) from
continuing operations
1998 $ 15,042 $ 1,213 $ 549 $(3,684) $ 13,120
1997 6,157 3,172 2,005 (2,449) 8,885
1996 4,525 2,647 3,972 (2,936) 8,208
Depreciation and amortization
1998 $ 6,769 $ 1,962 $ 367 $ 87 $ 9,185
1997 2,113 1,677 376 114 4,280
1996 2,278 770 468 106 3,622
Identifiable assets
1998 $143,977 $34,313 $10,492 $23,755 $212,537
1997 32,683 34,192 10,855 13,153 90,883
1996 30,789 20,940 15,050 10,720 77,499
Capital expenditures
1998 $ 5,306 $ 1,416 $ 60 $ 1,341 $ 8,123
1997 1,332 1,057 332 818 3,539
1996 1,547 755 639 5 2,946
</TABLE>
57
<PAGE> 24
A reconciliation of operating income from continuing operations for
reportable segments to consolidated operating income from continuing operations
is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating income for reportable segments $16,804 $11,334 $11,144
Other operating loss, mainly unallocated corporate
and other expenses (3,684) (2,449) (2,936)
Amortization expense (3,477) (879) (603)
Nonrecurring items, net gain (loss) (403) 297 (824)
------- ------- -------
Consolidated operating income from continuing operations $ 9,240 $ 8,303 $ 6,781
======= ======= =======
</TABLE>
Sales to manufacturers in the automotive industry, each representing over 10% of
consolidated sales in each year, aggregated approximately $87,000, $58,000 and
$46,000 in 1998, 1997, and 1996, respectively. Sales to agricultural equipment
manufacturers, principally one customer, were $35,000, $40,000 and $19,000 in
1998, 1997, and 1996, respectively.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The principal market for trading Newcor shares is The NASDAQ Stock
Market. The closing price on October 31, 1998 was $3.875. In connection with the
issuance of the Notes described in Note 2, cash dividends, which have
historically been paid on a quarterly basis, were suspended. Quarterly operating
results, dividends paid and the quarterly price ranges on the NASDAQ during the
last two years are as follows.
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
1998:
Sales $30,134 $55,369 $57,963 $62,754 $206,220
Gross margin 3,711 10,312 9,945 9,997 33,965
Net income (loss) (1,032) 753 (233) (647) (1,159)
Net income (loss) per share $ (0.21) $ 0.15 $ (0.05) $ (0.13) $ (0.23)
Share prices:
High $ 9.88 $ 9.75 $ 9.75 $ 8.13 --
Low 8.00 8.00 7.25 2.63 --
Dividends 0.05 -- -- -- --
<CAPTION>
Quarter
First Second Third Fourth Total
1997:
Sales $27,975 $34,589 $32,385 $35,899 $130,848
Gross margin 5,330 6,539 5,465 6,431 23,765
Net income 366 1,082 1,222 1,220 3,890
Net income per share $ 0.07 $ 0.22 $ 0.25 $ 0.25 $ 0.79
Share prices:
High $ 9.41 $ 9.17 $ 8.69 $ 9.88 --
Low 7.03 7.50 6.91 7.50 --
Dividends 0.05 0.05 0.05 0.05 --
</TABLE>
Gross margin for the fourth quarter of 1998 was negatively impacted by
approximately $1,300 (pre-tax) resulting from certain unfavorable year-end
adjustments to previously estimated inventory reserves. The aggregate effect of
these adjustments on the fourth quarter amounted to $0.17 per share after-tax.
15. CONTINGENT LIABILITIES:
Various legal matters arising during the normal course of business are
pending against the Company. Management does not expect that the ultimate
liability, if any, of these matters will have a material adverse effect on
future results of operations or financial condition of the Company.
58
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Newcor, Inc. on Form S-8 (File Nos. 033-72906, 333-01895, 333-12931, 333-12937,
333-23181, and 333-24301) of our report dated December 8, 1998, on our audits of
the consolidated financial statements of Newcor, Inc. as of October 31, 1998 and
1997, and for each of the three years in the period ended October 31, 1998,
which report is incorporated by reference in this Annual Report on Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
Detroit, Michigan
January 27, 1999
59
s
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 3,539
<SECURITIES> 0
<RECEIVABLES> 35,175
<ALLOWANCES> 0
<INVENTORY> 14,014
<CURRENT-ASSETS> 62,182
<PP&E> 73,125
<DEPRECIATION> 19,288
<TOTAL-ASSETS> 212,537
<CURRENT-LIABILITIES> 33,140
<BONDS> 6,100
0
0
<COMMON> 4,942
<OTHER-SE> 20,587
<TOTAL-LIABILITY-AND-EQUITY> 212,537
<SALES> 206,220
<TOTAL-REVENUES> 206,220
<CGS> 172,255
<TOTAL-COSTS> 196,980
<OTHER-EXPENSES> 172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,821
<INCOME-PRETAX> (1,753)
<INCOME-TAX> (594)
<INCOME-CONTINUING> (1,159)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,159)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
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